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RBI/2014-15/75 DBOD No BP.BC.20/21.04.141/2014-15 July 1, 2014
All Commercial Banks (excluding Regional Rural Banks)
Dear Sir,
Master Circular – Prudential Norms for Classification, Valuation and Operation of Investment Portfolio by Banks
Please refer to the Master Circular No. DBOD.BP.BC. 8/21.04.141/2013-14 dated July 1, 2013,
containing consolidated instructions/guidelines issued to banks till June 30, 2013, on matters
relating to prudential norms for classification, valuation and operation of investment portfolio by
banks. The above Master Circular has been updated by incorporating instructions/guidelines
issued up to June 30, 2014 and has also been placed on the RBI web-site
(http://www.rbi.org.in).
Yours faithfully,
(Rajesh Verma) Chief General Manager – in - Charge
Encl: As above
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Annex
MASTER CIRCULAR – PRUDENTIAL NORMS FOR CLASSIFICATION, VALUATION AND OPERATION OF INVESTMENT PORTFOLIO BY BANKS
Table of Contents
1. Introduction 4
1.1 Investment Policy 4
1.1.1 STRIPS 7
1.1.2 Ready forward contracts in Government Securities 7
1.1.3 Transactions through SGL account 9
1.1.4 Use of Bank Receipt (BR) 12
1.1.5 Retailing of Government Securities 14
1.1.6 Internal Control System 14
1.1.7 Engagement of brokers 17
1.1.8 Audit, Review and Reporting of Investment Transactions 18
1.2. Non-SLR investment 19
1.3 General 27
1.3.1 Reconciliation of holdings of Govt. securities, etc. 27
1.3.2 Transactions in securities - Custodial functions 27
1.3.3 Portfolio Management on behalf of clients 27
1.3.4 Investment Portfolio of banks - Transactions in Government Securities
28
2. Classification 29
2.1 Held to Maturity 29
2.2 Available for Sale & Held for Trading 31
2.3 Shifting among categories 32
3. Valuation 33
3.1 Held to Maturity 33
3.2 Available for Sale 34
3.3 Held for Trading 35
3.4 Investment Fluctuation Reserve& Investment Reserve Account
35
3.5 Market Value 37
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3.6 Unquoted SLR securities 37
3.6.1 Central Government Securities 37
3.6.2 State Government Securities 38
3.6.3 Other Approved Securities 38
3.7 Unquoted Non-SLR Securities 38
3.7.1 Debentures/Bonds 38
3.7.2 Bonds issued by State Distribution Companies (Discoms) under Financial Restructuring Plan
39
3.7.3 Zero Coupon Bonds 39
3.7.4 Preference Shares 39
3.7.5 Equity Shares 40
3.7.6 Mutual Fund Units 40
3.7.7 Commercial Paper 41
3.7.8 Investment in RRBs 41
3.8 Investment in securities Issued by Securitisation Company (SC) / Reconstruction Company (RC)
41
3.9 Valuation & classification of bank’s investment in Venture Capital Funds (VCFs)
41
3.10 Non Performing investments 43
4. Uniform Accounting for Repo/Reverse-Repo Transactions 44
5. General 47
5.1 Income Recognition 47
5.2 Broken period Interest 48
5.3 Dematerialized Holding 48
5.4 Investment in Zero Coupon and Low Coupon Bonds
issued by corporates
48
Annexes 49
Appendix 82
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MASTER CIRCULAR – PRUDENTIAL NORMS FOR CLASSIFICATION, VALUATION AND OPERATION OF INVESTMENT PORTFOLIO BY BANKS
1. Introduction
With the introduction of prudential norms on capital adequacy, income recognition, asset
classification and provisioning requirements, the financial position of banks in India has
improved in the last few years. Simultaneously, trading in securities market has improved in
terms of turnover and the range of maturities dealt with. In view of these developments and
taking into consideration the evolving international practices, Reserve Bank of India (RBI) has
issued guidelines on classification, valuation and operation of investment portfolio by banks
from time to time as detailed below:
1.1 Investment Policy
i) Banks should frame Internal Investment Policy Guidelines and obtain the Board’s
approval. The investment policy may be suitably framed/amended to include Primary Dealer
(PD) activities also. Within the overall framework of the investment policy, the PD business
undertaken by the bank will be limited to dealing, underwriting and market–making in
Government Securities. Investments in Corporate/PSU/FI bonds, Commercial Papers,
Certificate of Deposits, debt mutual funds and other fixed income securities will not be deemed
to be part of PD business. The investment policy guidelines should be implemented to ensure
that operations in securities are conducted in accordance with sound and acceptable business
practices. While framing the investment policy, the following guidelines are to be kept in view by
the banks:
(a)Banks may sell a government security already contracted for purchase, provided:
(i) The purchase contract is confirmed prior to the sale,
(ii) The purchase contract is guaranteed by Clearing Corporation of India Ltd.(CCIL) or the
security is contracted for purchase from the Reserve Bank and,
(iii) The sale transaction will settle either in the same settlement cycle as the preceding
purchase contract, or in a subsequent settlement cycle so that the delivery obligation
under the sale contract is met by the securities acquired under the purchase contract
(e.g. when a security is purchased on T+0 basis, it can be sold on either T+0 or T+1
basis on the day of the purchase; if however it is purchased on T+1 basis, it can be sold
on T+1 basis on the day of purchase or on T+0 or T+1 basis on the next day).
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For purchase of securities from the Reserve Bank through Open Market Operations (OMO),
no sale transactions should be contracted prior to receiving the confirmation of the
deal/advice of allotment from the Reserve Bank.
In addition to the above, the Scheduled Commercial Banks (SCBs) (other than RRBs and
LABs) and PDs have been permitted to short sell Government securities in accordance with
the requirements specified in Annex I-A.
Further, the NDS-OM members have been permitted to transact on ‘When Issued’ basis in
Central Government dated securities, subject to the guidelines specified in Annex I-B.
(b) Banks successful in the auction of primary issue of Government Securities may enter into
contracts for sale of the allotted securities in accordance with the terms and conditions as per
Annex I-C.
(c) The settlement of all outright secondary market transactions in Government Securities is
being done on a standardised T+1 basis effective May 24, 2005.
(d) All the transactions put through by a bank, either on outright basis or ready forward basis
and whether through the mechanism of Subsidiary General Ledger (SGL) Account or Bank
Receipt (BR), should be reflected on the same day in its investment account and, accordingly,
for SLR purpose wherever applicable. With a view to bringing in uniformity in the methodology of
accounting for investments in Government securities, banks should follow ‘Settlement Date’
accounting for recording purchase and sale of transactions in Government Securities.
(e) The brokerage on the deal payable to the broker, if any, (if the deal was put through with
the help of a broker) should be clearly indicated on the notes/ memoranda put up to the top
management seeking approval for putting through the transaction and a separate account of
brokerage paid, broker-wise, should be maintained.
(f) For issue of BRs, the banks should adopt the format prescribed by the Indian Banks'
Association (IBA) and strictly follow the guidelines prescribed by them in this regard. The banks,
subject to the above, could issue BRs covering their own sale transactions only and should not
issue BRs on behalf of their constituents, including brokers.
(g) The banks should be circumspect while acting as agents of their broker clients for carrying
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out transactions in securities on behalf of brokers.
(h) Any instance of return of SGL from the Public Debt Office (PDO) of the Reserve Bank for
want of sufficient balance in the account should be immediately brought to the Reserve Bank's
notice with the details of the transactions.
(i) Banks desirous of making investment in equity shares/ debentures should observe the
following guidelines:
(i) Build up adequate expertise in equity research by establishing a dedicated equity
research department, as warranted by their scale of operations;
(ii) Formulate a transparent policy and procedure for investment in shares, etc., with the
approval of the Board; and
(iii) The decision in regard to direct investment in shares, convertible bonds and
debentures should be taken by the Investment Committee set up by the bank's Board.
The Investment Committee should be held accountable for the investments made by the
bank.
ii) Banks should clearly lay down the broad investment objectives to be followed while undertaking
transactions in securities on their own investment account and on behalf of clients, clearly define
the authority to put through deals, procedure to be followed for obtaining the sanction of the
appropriate authority, procedure to be followed while putting through deals, various prudential
exposure limits and the reporting system. While laying down such investment policy guidelines,
banks should obtain the approval of respective Boards and strictly observe Reserve Bank's
detailed instructions on the following aspects:
a. STRIPS (Paragraph 1.1.1)
b. Ready Forward (buy back) deals in G-Sec (Paragraph 1.1.2)
c. Transactions through Subsidiary General Ledger A/c (Paragraph 1.1.3)
d. Use of Bank Receipts (Paragraph 1.1.4)
e. Retailing of Government Securities (Paragraph 1.1.5)
f. Internal Control System (Paragraph 1.1.6)
g. Dealings through Brokers (Paragraph 1.1.7)
h. Audit, Review and Reporting (Paragraph 1.1.8)
iii) The aforesaid instructions will be applicable mutatis mutandis, to the subsidiaries and mutual
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funds established by banks, except where they are contrary to or inconsistent with, specific
regulations of Securities and Exchange Board of India (SEBI) and the Reserve Bank, governing
their operations.
1.1.1 STRIPS
STRIPS stands for Separate Trading of Registered Interest and Principal Securities. Stripping is
a process of converting periodic coupon payments of an existing Government Security into
tradable zero-coupon securities, which will usually trade in the market at a discount and are
redeemed at face value. For instance, stripping a five-year Government Security would yield 10
coupon securities (representing the coupons), maturing on the respective coupon dates and one
principal security representing the principal amount, maturing on the redemption date of the five-
year security. Reconstitution is the reverse process of stripping, where, the Coupon STRIPS
and Principal STRIPS are reassembled into the original Government Security. Detailed
guidelines outlining the process of stripping/reconstitution and other operational procedures
regarding transactions in STRIPS are given in Annex I-D.
1.1.2 Ready Forward Contracts in Government Securities.
The terms and conditions subject to which ready forward contracts (including reverse ready
forward contracts) may be entered into are as under:
(a) Ready forward contracts may be undertaken only in (i) Dated Securities and Treasury
Bills issued by Government of India and (ii) Dated Securities issued by State Governments.
(b) Ready forward contracts in the above-mentioned securities may be entered into by:
i) persons or entities maintaining a Subsidiary General Ledger (SGL) account with RBI, Mumbai and
ii) the following categories of entities who do not maintain SGL accounts with the Reserve Bank but maintain gilt accounts (i.e gilt account holders) with a bank or any other entity (i.e. the custodian) permitted by the Reserve Bank to maintain Constituent Subsidiary General Ledger (CSGL) account with its PDO, Mumbai:
(a) Any scheduled bank,
(b) Any PD authorised by the Reserve Bank, (c) Any Non-Banking Financial Company (NBFC) registered with the Reserve Bank, other than Government Companies as defined in Section 617 of the Companies Act, 1956,
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(d) Any mutual fund registered with the SEBI,
(e) Any housing finance company registered with the National Housing Bank
(NHB)),
(f) Any insurance company registered with the Insurance Regulatory and
Development Authority(IRDA),
(g) Any non-scheduled Urban Co-operative bank,
(h) Any listed company, having a gilt account with a SCB, subject to the following conditions:
(1) The minimum period for Reverse Repo (lending of funds) by listed companies is seven days. However, listed companies can borrow funds through repo for shorter periods including overnight;
(2) Where the listed company is a 'buyer' of securities in the first leg of the repo contract (i.e. lender of funds), the custodian through which the repo transaction is settled should block these securities in the gilt account and ensure that these securities are not further sold or rerepoed during the repo period but are held for delivery under the second leg; and
(3) The counterparty to the listed companies for repo / reverse repo transactions should be either a bank or a PD maintaining SGL Account with the Reserve Bank.
(i) Any unlisted company which has been issued special securities by the
Government of India and having gilt account with a SCB; subject to the following conditions in addition to the conditions stipulated for listed company:
(1) The eligible unlisted companies can enter into ready forward transactions as the borrower of funds in the first leg of the repo contract only against the collateral of the special securities issued to them by the Government of India; and
(2) The counterparty to the eligible unlisted companies for repo transactions should be either a bank or a PD maintaining SGL account with the Reserve Bank.
(c) All persons or entities specified at b(ii) above can enter into ready forward transactions
among themselves subject to the following restrictions:
i) An SGL account holder may not enter into a ready forward contract with its own constituent. That is, ready forward contracts should not be undertaken between a custodian and its gilt account holder,
ii) Any two gilt account holders maintaining their gilt accounts with the same custodian (i.e., the CSGL account holder) may not enter into ready forward contracts with
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each other, and
iii) Cooperative banks may not enter into ready forward contracts withNBFCs. This restriction would not apply to repo transactions between Urban Co-operative banks and authorised PDs in Government Securities.
(d)All ready forward contracts shall be reported on the Negotiated Dealing System (NDS). In
respect of ready forward contracts involving gilt account holders, the custodian (i.e., the CSGL
account holder) with whom the gilt accounts are maintained will be responsible for reporting the
deals on the NDS on behalf of the constituents (i.e. the gilt account holders).
(e)All ready forward contracts shall be settled through the SGL Account / CSGL Account
maintained with the RBI, Mumbai, with the Clearing Corporation of India Ltd. (CCIL) acting as
the central counter party for all such ready forward transactions.
(f) The custodians should put in place an effective system of internal control and concurrent
audit to ensure that:
i) ready forward transactions are undertaken only against the clear balance of securities in the gilt account,
ii) all such transactions are promptly reported on the NDS, and
iii)other terms and conditions referred to above have been complied with.
(g) The RBI regulated entities can undertake ready forward transactions only in securities held
in excess of the prescribed Statutory Liquidity Ratio (SLR) requirements.
(h) No sale transaction shall be put through, in the first leg of a ready forward transaction by
CSGL constituent entities without actually holding the securities in the portfolio.
(i) Securities purchased under the ready forward contracts shall not be sold during the period
of the contract except by entities permitted to undertake short selling,
(j) Double ready forward deals in any security are strictly prohibited.
(k) The guidelines for uniform accounting for Repo / Reverse Repo transactions are furnished
in paragraph 4.
1.1.3 Transactions through SGL account
The following instructions should be followed by banks for purchase / sale of securities through
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SGL A/c, under the Delivery Versus Payment System wherein the transfer of securities takes
place simultaneously with the transfer of funds. It is, therefore, necessary for both the selling
bank and the buying bank to maintain current account with the Reserve Bank. As no ‘Overdraft
facility’ in the current account would be extended, adequate balance in current account should
be maintained by banks for effecting any purchase transaction.
i) All transactions in Government Securities for which SGL facility is available should be put
through SGL A/cs only.
ii) Under no circumstances, a SGL transfer form issued by a bank in favour of another
bank should bounce for want of sufficient balance of securities in the SGL A/c of seller or
for want of sufficient balance of funds in the current a/c of the buyer.
iii) The SGL transfer form received by purchasing banks should be deposited in their SGL
A/cs. immediately i.e. the date of lodgment of the SGL Form with the Reserve Bank shall
be within one working day after the date of signing of the Transfer Form. While in cases
of OTC trades, the settlement has to be only on 'spot' delivery basis as per Section 2(i) of
the Securities Contracts (Regulations) Act, 1956, in cases of deals on the recognised
Stock Exchanges; settlement should be within the delivery period as per their rules, bye
laws and regulations. In all the cases, participants must indicate the deal/trade/contract
date in Part C of the SGL Form under 'Sale date'. Where this is not completed the SGL
Form will not be accepted by the Reserve Bank.
iv) No sale should be effected by way of return of SGL form held by the bank.
v) SGL transfer forms should be signed by two authorised officials of the bank whose
signatures should be recorded with the respective PDOs of the Reserve Bank and other
banks.
vi) The SGL transfer forms should be in the standard format prescribed by the Reserve
Bank and printed on semi-security paper of uniform size. They should be serially
numbered and there should be a control system in place to account for each SGL form.
vii) If a SGL transfer form bounces for want of sufficient balance in the SGL A/c, the
(selling) bank which has issued the form will be liable to the following penal action
against it :
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a) The amount of the SGL form (cost of purchase paid by the purchaser of the
security) would be debited immediately to the current account of the selling bank
with the Reserve Bank.
b) In the event of an overdraft arising in the current account following such a
debit, penal interest would be charged by the Reserve Bank, on the amount of the
overdraft, at a rate of 3 percentage points above the SBI Discount and Finance
House of India's (SBIDFHI) call money lending rate on the day in question.
However, if the SBIDFHI's closing call money rate is lower than the prime lending
rate of banks, as stipulated in the Reserve Bank's interest rate directive in force,
the applicable penal rate to be charged will be 3 percentage points, above the
prime lending rate of the bank concerned, and
c) SGL bouncing shall mean failure of settlement of a Government Securities
transaction on account of insufficiency of funds in the current account of the buyer or
insufficiency of securities in the SGL / CSGL account of the seller, maintained with
the Reserve Bank. In the event of bouncing of SGL transfer forms and the failure of
the account holder concerned to offer satisfactory explanation for such bouncing, the
account holder shall be liable to pay penalties as under:
(i) Graded monetary penalties subject to a maximum penalty of Rs.5 lakhs per
instance;
Sl. No
Applicable to Monetary penalty Illustration
[Penal amount on Rs.5 crore default]
1 First three defaults in a financial year (April to March)
0.10% (10 paise per Rs.100 FV)
Rs.50,000/-
2 Next three defaults in the same financial year
0.25% (25 paise per Rs.100 FV.)
Rs.1,25,000/-
3 Next three defaults in the same financial year
0.50% (50 paise per Rs.100 FV)
Rs.2,50,000/-
(ii) On the tenth default in a financial year, the eligible entities will be debarred
from using the SGL A/c for undertaking short sales in Government Securities
even to the extent permissible under circular IDMD.No/11.01.01(B)/2006-07
dated January 31, 2007 as amended from time to time, during the remaining
portion of the financial year. In the next financial year, upon being satisfied that
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the a/c holder in question has effected improvements in its internal control
systems, the Reserve Bank may grant specific approval for undertaking short
sales by using the SGL A/c facility.
(iii) The monetary penalty may be paid by the account holder concerned by way
of a cheque or through electronic mode for the amount favouring the Reserve
Bank, within five working days of receipt of intimation of order imposing penalty
from the Reserve Bank.
The defaulting member shall make appropriate disclosure, on the number of instances of default
as well as the quantum of penalty paid to the Reserve Bank during the financial year, under the
“Notes to Account” in its balance sheet.
The Reserve Bank reserves the right to take any action including temporary or permanent
debarment of the SGL account holder, in accordance with the powers conferred under the
Government Securities Act, 2006 as it may deem fit, for violation of the terms and conditions of
the opening and maintenance of SGL/ CSGL accounts or breach of the operational guidelines
issued from time to time.
1.1.4 Use of Bank Receipt (BR)
The banks should followthe following instructions for issue of BRs:
a) No BR should be issued under any circumstances in respect of transactions inGovernment Securities for which SGL facility is available.
b) Even in the case of other securities, BR may be issued for ready transactions only, under the following circumstances:
(i) The scrips are yet to be issued by the issuer and the bank is holding the allotment
advice.
(ii) The security is physically held at a different centre and the bank is in a position to
physically transfer the security and give delivery thereof within a short period.
(iii)The security has been lodged for transfer / interest payment and the bank is holding
necessary records of such lodgments and will be in a position to give physical delivery of
the security within a short period.
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c) No BR should be issued on the basis of a BR (of another bank) held by the bank and no
transaction should take place on the basis of a mere exchange of BRs held by the bank.
d)BRs could be issued covering transactions relating to banks' own Investments Accounts
only, and no BR should be issued by banks covering transactions relating to either the
Accounts of Portfolio Management Scheme (PMS) Clients or Other Constituents' Accounts,
including brokers.
e) No BR should remain outstanding for more than 15 days.
f)A BR should be redeemed only by actual delivery of scrips and not by cancellation of the
transaction/set off against another transaction. If a BR is not redeemed by delivery of scrips
within the validity period of 15 days, the BR should be deemed as dishonoured and the bank
which has issued the BR should refer the case to the Reserve Bank, explaining the reasons
for which the scrips could not be delivered within the stipulated period and the proposed
manner of settlement of the transaction.
g) BRs should be issued on semi-security paper, in the standard format (prescribed by IBA),
serially numbered and signed by two authorised officials of the bank, whose signatures are
recorded with other banks. As in the case of SGL forms, there should be a control system in
place to account for each BR form.
h) Separate registers of BRs issued and BRs received should be maintained and
arrangements should be put in place to ensure that these are systematically followed up and
liquidated within the stipulated time limit.
i) The banks should also have a proper system for the custody of unused BR
Forms and their utilisation. The existence and operations of these controls at the concerned
offices/ departments of the bank should be reviewed, among others, by the statutory
auditors and a certificate to this effect may be forwarded every year to the Regional Office of
Department of Banking Supervision (DBS), RBI, under whose jurisdiction the Head Office of
the bank is located.
j) Any violation of the instructions relating to BRs would invite penal action, which could
include raising of reserve requirements, withdrawals of refinance facility from the Reserve
Bank and denial of access to money markets. The Reserve Bank may also levy such other
penalty as it may deem fit in accordance with the provisions of the Banking Regulation Act,
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1949.
1.1.5 Retailing of Government Securities
The banks may undertake retailing of Government Securities with non-bank clients subject to
the following conditions:
i) Such retailing should be on outright basis and there is no restriction on the period between sale and purchase.
ii) The retailing of Government Securities should be on the basis of ongoing market rates/ yield curve emerging out of secondary market transactions.
1.1.6 Internal Control System
The banks should observe the following guidelines for internal control system in respect of
investment transactions:
(a) There should be a clear functional separation of (i) trading, (ii) settlement, monitoring
and control and (iii) accounting. Similarly, there should be a functional separation of trading and
back office functions relating to banks' own Investment Accounts, Portfolio Management
Scheme (PMS) Clients’ Accounts and other Constituents (including brokers') accounts. The
Portfolio Management service may be provided to clients, subject to strictly following the
guidelines in regard thereto (covered in paragraph 1.3.3). Further, PMS Clients Accounts
should be subjected to a separate audit by external auditors.
(b) In the interest of maintaining integrity and orderly conditions in the government securities
market, all SGL/CSGL account holders should adhere to the FIMMDA code of conduct while
executing trades on NDS-OM and in the OTC market.
(c) For every transaction entered into, the trading desk should prepare a deal slip which
should contain data relating to nature of the deal, name of the counter-party, whether it is a
direct deal or through a broker, and if through a broker, name of the broker, details of security,
amount, price, contract date and time. The deal slips should be serially numbered and
controlled separately to ensure that each deal slip has been properly accounted for. Once the
deal is concluded, the dealer should immediately pass on the deal slip to the back office for
recording and processing. For each deal there must be a system of issue of confirmation to the
counterparty. The timely receipt of requisite written confirmation from the counterparty, which
must include all essential details of the contract, should be monitored by the back office.
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(d) With respect to transactions matched on the NDS-OM module, since CCIL is the central
counterparty to all deals, exposure of any counterparty for a trade is only to CCIL and not to the
entity with whom a deal matches. Besides, details of all deals on NDS-OM are available to the
counterparties as and when required by way of reports on NDS-OM itself. In view of the above,
the need for counterparty confirmation of deals matched on NDS-OM does not arise. The deals
in Government Security transactions in OTC market that are mandated to be settled through
CCIL by reporting on the NDS, are not required to be confirmed physically as OTC deals
depend on electronic confirmation by the back offices of both the counterparties on NDS
system like the NDS-OM deals.
However, all Government Securities transactions, other than those mentioned above, will
continue to be physically confirmed by the back offices of the counterparties, as hitherto.
(e) Once a deal has been concluded, there should not be any substitution of the counter
party bank by another bank by the broker, through whom the deal has been entered into;
likewise, the security sold/purchased in the deal should not be substituted by another security.
(f) On the basis of vouchers passed by the back office (which should be done after
verification of actual contract notes received from the broker/ counterparty and confirmation of
the deal by the counterparty), the Accounts Section should independently write the books of
account.
(g) In the case of transaction relating to PMS Clients' Accounts (including brokers), all the
relative records should give a clear indication that the transaction belongs to PMS Clients/ other
constituents and does not belong to bank's own Investment Account and the bank is acting only
in its fiduciary/ agency capacity.
(h)(i)Records of SGL transfer forms issued/ received, should be maintained.
(ii) Balances as per bank's books should be reconciled at quarterly intervals with the
balances in the books of PDOs. If the number of transactions so warrant, the
reconciliation should be undertaken more frequently, say on a monthly basis. This
reconciliation should be periodically checked by the internal audit department.
(iii) Any bouncing of SGL transfer forms issued by selling banks in favour of the buying
bank, should immediately be brought to the notice of the Regional Office of DBS of the
Reserve Bank by the buying bank.
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(iv) A record of BRs issued/ received should be maintained.
(v) A system for verification of the authenticity of the BRs and SGL transfer forms
received from the other banks and confirmation of authorised signatories should be put
in place.
(i) Banks should put in place a reporting system to report to their top management, on a
weekly basis, the details of transactions in securities, details of bouncing of SGL transfer forms
issued by other banks and BRs outstanding for more than one month and a review of
investment transactions undertaken during the period.
(j) Banks should not draw cheques on their account with the Reserve Bank for third
partytransactions, including inter-bank transactions. For such transactions, bankers' cheques/
pay orders should be issued.
(k) In case of investment in shares, the surveillance and monitoring of investment should be
done by the Audit Committee of the Board, which shall review in each of its meetings, the total
exposure of the bank to capital market, both fund based and non-fund based, in different forms
as stated above and ensure that the guidelines issued by the Reserve Bank are complied with
and adequate risk management and internal control systems are in place.
(l) The Audit Committee should keep the Board informed about the overall exposure to capital
market, the compliance with the Reserve Bank and Board guidelines, adequacy of risk
management and internal control systems.
(m) In order to avoid any possible conflict of interest, it should be ensured that the stockbrokers
as directors on the Boards of banks or in any other capacity, do not involve themselves in any
manner with the Investment Committee or in the decisions in regard to making investments in
shares, etc., or advances against shares.
(n) The internal audit department should audit the transactions in securities on an ongoing
basis, monitor the compliance with the laid down management policies and prescribed
procedures and report the deficiencies directly to the management of the bank.
(o) The banks' managements should ensure that there are adequate internal control and audit
procedures for ensuring proper compliance of the instructions in regard to the conduct of the
investment portfolio. The banks should institute a regular system of monitoring compliance with
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the prudential and other guidelines issued by the Reserve Bank. The banks should get
compliance in key areas certified by their statutory auditors and furnish such audit certificate to
the Regional Office of DBS, RBI under whose jurisdiction the HO of the bank falls.
1.1.7 Engagement of brokers
i)For engagement of brokers to deal in investment transactions, the banks should observe the
following guidelines:
(a) Transactions between one bank and another bank should not be put through the brokers'
accounts. The brokerage on the deal payable to the broker, if any (if the deal was put through
with the help of a broker), should be clearly indicated on the notes/memorandum put up to
the top management seeking approval for putting through the transaction and separate
account of brokerage paid, broker-wise, should be maintained.
(b) If a deal is put through with the help of a broker, the role of the broker should be restricted
to that of bringing the two parties to the deal together.
(c) While negotiating the deal, the broker is not obliged to disclose the identity of the
counterparty to the deal. On conclusion of the deal, he should disclose the counterparty and
his contract note should clearly indicate the name of the counterparty. It should also be
ensured by the bank that the broker note contains the exact time of the deal. Their back
offices may ensure that the deal time on the broker note and the deal ticket is the same. The
bank should also ensure that their concurrent auditors audit this aspect.
(d) On the basis of the contract note disclosing the name of the counterparty, settlement of
deals between banks, viz. both fund settlement and delivery of security should be directly
between the banks and the broker should have no role to play in the process.
(e) With the approval of their top managements, banks should prepare a panel of approved
brokers which should be reviewed annually or more often if so warranted. Clear-cut criteria
should be laid down for empanelment of brokers, including verification of their
creditworthiness, market reputation, etc. A record of broker-wise details of deals put through
and brokerage paid, should be maintained.
(f) A disproportionate part of the business should not be transacted through only one or a few
brokers. Banks should fix aggregate contract limits for each of the approved brokers. A limit
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of 5% of total transactions through brokers(both purchase and sales) entered into by a bank
during a year should be treated as the aggregate upper contract limit for each of the
approved brokers. This limit should cover both the business initiated by a bank and the
business offered/brought to the bank by a broker. Banks should ensure that the transactions
entered into through individual brokers during a year normally do not exceed this limit.
However, if for any reason it becomes necessary to exceed the aggregate limit for any
broker, the specific reasons for the same should be recorded, in writing, by the authority
empowered to put through the deals. Further, the board should be informed of this, post
facto. However, the norm of 5% would not be applicable to banks' dealings through PDs.
(g) The concurrent auditors who audit the treasury operations should scrutinise the business
done through brokers also and include it in their monthly report to the Chief Executive Officer
of the bank. Besides, the business put through any individual broker or brokers in excess of
the limit, with the reasons for the same, should be covered in the half-yearly review to the
Board of Directors/Local Advisory Board. These instructions also apply to subsidiaries and
mutual funds of the banks.
[Certain clarifications on the instructions are furnished in the Annex II.]
ii)Inter-bank securities transactions should be undertaken directly between banks and no bank
should engage the services of any broker in such transactions.
Exceptions:
Note (i) Banks may undertake securities transactions among themselves or with non-bank
clients through members of the National Stock Exchange (NSE), OTC Exchange of India (OTCEI),the Stock Exchange, Mumbai (BSE) and MCX Stock Exchange (MCX-SX). If such transactions are not undertaken on the NSE, OTCEI, BSE or MCX-SX, the same should be undertaken by banks directly, without engaging brokers.
Note (ii) Although the Securities Contracts (Regulation) Act, 1956 defines the term `securities' to mean corporate shares, debentures, Government Securities and rights or interest in securities, the term `securities' would exclude corporate shares. The Provident / Pension Funds and Trusts registered under the Indian Trusts Act, 1882, will be outside the purview of the expression `non-bank clients’ for the purpose of note (i) above.
1.1.8 Audit, review and reporting of investment transactions
The banks should adhere tothe following instructions in regard to audit, review and reporting of
investment transactions:
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19 Prudential Norms on Investments - 2014
a) Banks should undertake a half-yearly review (as of March 31 and September 30)
of their investment portfolio, which should, apart from other operational aspectsof
investment portfolio, clearly indicate amendments made to the Investment Policy and
certify adherence to laid down internal investment policy and procedures and the Reserve
Bank guidelines, and put up the same before their respective Boards within a month, i.e.
by end-April and end-October.
b) A copy of the review report put up to the Bank's Board, should be forwarded to the
Reserve Bank (concerned Regional Office of DBS, RBI) by May 15 and November
15respectively.
c) In view of the possibility of abuse, treasury transactions should be separately
subjected to concurrent audit by internal auditors and the results of their audit should be
placed before the CMD of the bank once every month. Banks need not forward copies of
the above mentioned concurrent audit reports to the Reserve Bank. However, the major
irregularities observed in these reports and the position of compliance thereto may be
incorporated in the half yearly review of the investment portfolio.
1.2 Non- SLR investments
1.2.1
(i) Appraisal
Banks have made significant investment in privately placed unrated bonds and, in certain
cases, in bonds issued by corporates who are not their borrowers. While assessing such
investment proposals on private placement basis, in the absence of standardised and
mandated disclosures, including credit rating, banks may not be in a position to conduct proper
due diligence to take an investment decision. Thus, there could be deficiencies in the appraisal
of privately placed issues.
(ii) The risk arising from inadequate disclosure in offer documents should be recognized. In
this connection, SEBI has notified the Securities and Exchange Board of India (Issue and
Listing of Debt Securities) Regulations, 2008 and also simplified listing agreement for Debt
Securities vide their circular dated May 11, 2009 and subsequent amendments, both for
issuers whose equity shares are listed or not listed on the Exchange. Banks may henceforth
adhere to the SEBI regulations with respect to the disclosure norms for issue of debt
securities. Even in case of investment in non-SLR debt securities which are not listed, banks
may ensure that the disclosure standards prescribed by SEBI are adhered to. All other
guidelines issued by RBI with respect to investment in Non-SLR securities remain unchanged.
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(iii) Internal assessment
With a view to ensuring that the investments by banks in issues through private placement,
both of the borrower customers and non-borrower customers, do not give rise to systemic
concerns, it is necessary that banks should ensure that their investment policies duly approved
by the Board of Directors are formulated after taking into account the following aspects:
(a) The Boards of banks should lay down policy and prudential limits on investments in
bonds and debentures including those on private placement basis, sub limits for PSU
bonds, corporate bonds, guaranteed bonds, issuer ceiling, etc.
(b) Investment proposals should be subjected to the same degree of credit risk
analysis as any loan proposal. Banks should make their own internal credit analysis and
rating even in respect of rated issues and should not entirely rely on the ratings of
external agencies. The appraisal should be more stringent in respect of investments in
instruments issued by non-borrower customers.
(c) Strengthen their internal rating systems which should also include building up of a
system of regular (quarterly or half-yearly) tracking of the financial position of the issuer
with a view to ensuring continuous monitoring of the rating migration of the
issuers/issues.
(d) As a matter of prudence, banks should stipulate entry-level minimum ratings/
quality standards and industry-wise, maturity-wise, duration-wise, issuer-wise etc. limits
to mitigate the adverse impacts of concentration and the risk of illiquidity.
(e) The banks should put in place proper risk management systems for capturing and
analysing the risk in respect of these investments and taking remedial measures in time.
(iv) Some banks/FIs have not exercised due precaution by reference to the list of defaulters
circulated/published by the Reserve Bank while investing in bonds, debentures, etc., of
companies. Banks may, therefore, exercise due caution, while taking any investment decision
to subscribe to bonds, debentures, shares etc., and refer to the ‘Defaulters List’ to ensure that
investments are not made in companies/entities who are defaulters to banks/FIs. Some of the
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companies may be undergoing adverse financial position, turning their accounts to sub-
standard category due to recession in their industry segment, like textiles. Despite
restructuring facility provided under the Reserve Bank guidelines, the banks have been
reported to be reluctant to extend further finance, though considered warranted on merits of
the case. Banks may not refuse proposals for such investments in companies whose director’s
name(s) find place in the ‘Defaulter Companies List’ circulated by the Reserve Bank at
periodical intervals and particularly in respect of those loan accounts, which have been
restructured under extant RBI guidelines, provided the proposal is viable and satisfies all
parameters for such credit extension.
Prudential guidelines on investment in Non-SLR securities
1.2.2 Coverage
These guidelines cover banks’ investments in non-SLR securities issued by corporates, banks,
FIs and State and Central Government sponsored institutions, Special Purpose Vehicles (SPVs)
etc., including capital gains bonds, bonds eligible for priority sector status. The guidelines will
apply to investments both in the primary market as well as the secondary market.
1.2.3The guidelines on listing and rating pertaining to non-SLR securities videparagraphs 1.2.7
to 1.2.16 are not applicable to banks’ investments in:
(a) Securities directly issued by the Central and State Governments, which are not reckoned for SLR purposes.
(b) Equity shares
(c) Units of equity oriented mutual fund schemes, viz. those schemes where any part of the corpus can be invested in equity
(d) Equity/debt instruments/Units issued by Venture capital funds
(e) Commercial Paper
(f) Certificates of Deposit
(g) Non Convertible Debentures (NCDs) with original or initial maturity up to one year issued by corporates (including NBFCs)
(h) Securities acquired by way of conversion of debt, subject to periodic reporting to the Reserve Bank in the DSB return on Asset Quality.
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1.2.4Definitions of a few terms used in these guidelines have been furnished in Annex III with a
view to ensure uniformity in approach while implementing the guidelines.
Regulatory requirements
1.2.5Banks should not invest in Non-SLR securities of original maturity of less than one-year,
other than Commercial Paper and Certificates of Deposits and NCDs with original or initial
maturity up to one year issued by corporates (including NBFCs), which are covered under RBI
guidelines. However, while investing in such NCDs banks should be guided by the extant
prudential guidelines in force, ensure that the issuer has disclosed the purpose for which the
NCDs are being issued in the disclosure document and such purposes are eligible for bank
finance to Non-Banking Financial Companies under extant RBI guidelines.
1.2.6Banks should undertake usual due diligence in respect of investments in non-SLR
securities. Present RBI regulations preclude banks from extending credit facilities for certain
purposes. Banks should ensure that such activities are not financed by way of funds raised
through the non-SLR securities.
Listing and rating requirements
1.2.7Banks must not invest in unrated non-SLR securities. However, the banks may invest in
unrated bonds of companies engaged in infrastructure activities, within the ceiling of 10 per cent
for unlisted non-SLR securities as prescribed vide paragraph 1.2.10 below.
1.2.8The Securities Exchange Board of India (SEBI) vide their circular dated May 11, 2009 and
subsequent amendments has stipulated requirements that companies are required to comply
with, for making issue of debt securities on a private placement basis and listed on a stock
exchange. According to this circular, any company, making issue of debt securities on a private
placement basis and listed on a stock exchange, has to make full disclosures (initial and
continuing) in the manner prescribed in Schedule II of the Companies Act 1956, SEBI
(Disclosure and Investor Protection) Guidelines, 2000 and the Listing Agreement with the
exchanges. Furthermore, the debt securities shall carry a credit rating of not less than
investment grade from a Credit Rating Agency registered with the SEBI.
1.2.9 Accordingly, while making fresh investments in non-SLR debt securities, banks should
ensure that such investments are made only in listed debt securities of companies which comply
with the requirements of the SEBI circular dated September 30, 2003(amended vide circular
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dated May 11, 2009), except to the extent indicated in paragraph 1.2.10 and 1.2.11 below.
Fixing of prudential limits
1.2.10 Bank’s investment in unlisted non-SLR securities should not exceed 10 per cent of its
total investment in non-SLR securities as on March 31, of the previous year, and such
investment should comply with the disclosure requirements as prescribed by the SEBI for listed
companies. Further, as there is a time lag between issuance and listing of securities, investment
in non-SLR debt securities (both primary and secondary market) by banks where the security is
proposed to be listed on the Exchange(s) may be considered as investment in listed security at
the time of making investment. However, if such security is not listed within the period specified,
the same will be reckoned for the 10 per cent limit specified for unlisted non-SLR securities. In
case such investments included under unlisted non-SLR securities lead to a breach of the 10
per cent limit, the bank would not be allowed to make further investment in non-SLR securities
(both primary and secondary market) as also in unrated bonds issued by companies engaged in
infrastructure activities till such time bank’s investment in unlisted non-SLR securities comes
within the limit of 10 per cent.
1.2.11 Bank’s investment in unlisted non-SLR securities may exceed the limit of 10 per cent, by
an additional 10 per cent, provided the investment is on account of investment in Securitisation
papers issued for infrastructure projects, and bonds/debentures issued by Securitisation
Companies (SCs) and Reconstruction Companies (RCs) set up under the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI
Act) and registered with the Reserve Bank. In other words, investments exclusively in securities
specified in this paragraph could be up to the maximum permitted limit of 20 per cent of non-
SLR investment.
1.2.12 The total investment by banks in liquid/short term debt schemes (by whatever name
called) of mutual funds with weighted average maturity of portfolio of not more than 1 year, will
be subject to a prudential cap of 10 per cent of their net worth as on March 31 of the previous
year. The weighted average maturity would be calculated as average of the remaining period of
maturity of securities weighted by the sums invested.
1.2.13Investment in the following will not be reckoned as ‘unlisted non-SLR securities’ for
computing compliance with the prudential limits prescribed in the above guidelines:
(i) Security Receipts issued by SCs / RCs registered with the Reserve Bank.
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(ii) Investment in Asset Backed Securities (ABS) and Mortgage Backed Securities (MBS),
which are rated at or above the minimum investment grade. However, there will be close
monitoring of exposures to ABS on a bank specific basis based on monthly reports to be
submitted to the Reserve Bank as per proforma being separately advised by the DBS.
(iii)Investments in unlisted convertible debentures. However, investments in these
instruments would be treated as “Capital Market Exposure”.
1.2.14The investments in RIDF/SIDBI/RHDF deposits may not be reckoned as part of the
numerator as well as denominator for computing compliance with the prudential limit of 10 per
cent of its total non-SLR securities as on March 31, of the previous year.
1.2.15With effect from January 1, 2005, only investment in units of such mutualfund schemes,
which have an exposure to unlisted securities of less than 10 per cent of the corpus of the fund,
will be treated on par with listed securities for the purpose of compliance with the prudential
limits prescribed in the above guidelines. While computing the exposure to the unlisted
securities for compliance with the norm of less than 10 percent of the corpus of the mutual fund
scheme, Treasury Bills, Collateralised Borrowing and Lending Obligations (CBLO),
Repo/Reverse Repo and Bank Fixed Deposits may not be included in the numerator.
1.2.16For the purpose of the prudential limits prescribed in the guidelines, thedenominator, viz.,
'non-SLR investments', would include investment under the following four categories in
Schedule 8 to the balance sheet viz., 'shares', 'bonds & debentures', 'subsidiaries/joint ventures'
and 'others'.
1.2.17 Banks whose investment in unlisted non-SLR securities are within the prudential limit of
10 per cent of its total non-SLR securities as on March 31, of the previous year may make fresh
investment in such securities and up to the prudential limits.
Role of Boards
1.2.18 Banks should ensure that their investment policies, duly approved by the Board of
Directors, are formulated after taking into account all the relevant issues specified in these
guidelines on investment in non-SLR securities. Banks should put in place proper risk
management systems for capturing and analysing the risk in respect of non-SLR investment and
taking remedial measures in time. Banks should also put in place appropriate systems to ensure
that investment in privately placed instruments is made in accordance with the systems and
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procedures prescribed under respective bank’s investment policy.
1.2.19 Boards of banks should review the following aspects of non-SLR investment at least at
quarterly intervals:
a) Total business (investment and divestment) during the reporting period.
b) Compliance with the prudential limits prescribed by the Board for non-SLR investment.
c) Compliance with the prudential guidelines issued by the Reserve Bank on non-SLR securities.
d) Rating migration of the issuers/ issues held in the bank’s books and consequent diminution in the portfolio quality.
e) Extent of non-performing investments in the non-SLR category.
Disclosures
1.2.20In order to help in the creation of a central database on private placement of debt, a copy
of all offer documents should be filed with a credit information company, which has obtained
Certificate of Registration from the Reserve Bank and of which the bank is a member, by the
investing banks. Further, any default relating to interest/ installment in respect of any privately
placed debt should also be reported to a credit information company, which has obtained
Certificate of Registration from the Reserve Bank and of which the bank is a member, by the
investing banks along with a copy of the offer document.
1.2.21 Banks should disclose the details of the issuer composition of non-SLR investments and
the non-performing non-SLR investments in the ‘Notes on Accounts’ of the balance sheet, as
indicated in Annex IV.
1.2.22 Trading and Settlement in Corporate Debt Securities
As per the SEBI guidelines, all trades with the exception of the spot transactions, in a listed debt
security, shall be executed only on the trading platform of a stock exchange. In addition to
complying with the SEBI guidelines, banks should report their secondary market OTC trades in
Corporate Bonds within 15 minutes of the trade on any of the stock exchanges (NSE, BSE and
MCX-SX).
All OTC trades in corporate bonds shall necessarily be cleared and settled through the National
Securities Clearing Corporation Ltd. (NSCCL) or Indian Clearing Corporation Ltd. (ICCL)or
MCX-SX Clearing Corporation Ltd. (MCX-SX CCL) as per the norms specified by the
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NSCCL,ICCL and MCX-SX CCL from time to time.
1.2.23 Repo in Corporate Debt Securities
Eligible entities as per detailed guidelines given in Annex I-E can undertake repo in corporate
debt securities which are rated ‘AA’ or above (or such other equivalent rating for instruments of
maturity below one year)by the rating agencies, that are held in the security account of the repo
seller, in demat form.
1.2.24 OTC transactions in Securitized Debt Instruments Banks should report their secondary market OTC trades in securitized debt instruments within 15 minutes of the trade on any of the stock exchanges (NSE, BSE and MCX-SX). These trades may be cleared and settled through any of the clearing corporations (NSCCL, ICCL and MCX-SX CCL).
1.2.25. Settlement of OTC Transactions - in Certificates of Deposit (CDs) and Commercial Papers (CPs)
Banks shall report their OTC transactions in CDs and CPs on F-TRAC platform managed by
Clearcorp Dealing System (India) Ltd. (CDSIL) within 15 minutes of the trade for online
dissemination of market information.
Further, all OTC trades in CDs and CPs shall necessarily be cleared and settled through the
National Securities Clearing Corporation Limited (NSCCL) or Indian Clearing Corporation
Limited (ICCL) or MCX-SX Clearing Corporation Limited (MCX-SX CCL) as per the norms
specified by NSCCL , ICCL and CCL from time to time.
1.2.26 Limits on Banks' Exposure to Capital Markets
A. Solo Basis
The aggregate exposure of a bank to the capital markets in all forms (both fund based and non-
fund based) should not exceed 40 per cent of its net worth as on March 31 of the previous year.
Within this overall ceiling, the bank’s direct investment in shares, convertib le bonds/ debentures,
units of equity-oriented mutual funds and all exposures to Venture Capital Funds (VCFs) [both
registered and unregistered] should not exceed 20 per cent of its net worth.
B. Consolidated Basis
The aggregate exposure of a consolidated bank to capital markets (both fund based and non-
fund based) should not exceed 40 per cent of its consolidated net worth as on March 31 of the
previous year. Within this overall ceiling, the aggregate direct exposure by way of the
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consolidated bank’s investment in shares, convertible bonds / debentures, units of equity-
oriented mutual funds and all exposures to VCFs ([both registered and unregistered)] should not
exceed 20 per cent of its consolidated net worth.
The above-mentioned ceilings are the maximum permissible and a bank’s Board of Directors is
free to adopt a lower ceiling for the bank, keeping in view its overall risk profile and corporate
strategy. Banks are required to adhere to the ceilings on an ongoing basis.
1.3 General
1.3.1 Reconciliation of holdings of Government Securities – Audit Certificate
Banks should furnish a ‘Statement of the Reconciliation of Bank's Investments (held in own
Investment account, as also under PMS)’, as at the end of every accounting year duly certified
by the bank's auditors. The statement should reach the Regional Office of the DBS, RBI, under
whose jurisdiction the bank’s head office is located within one month from the close of the
accounting year. Banks in the letters of appointment, issued to their external auditors, may
suitably include the aforementioned requirement of reconciliation. The format for the statement
and the instructions for compiling the same are given in Annex V.
1.3.2 Transactions in securities - Custodial functions
While exercising the custodial functions on behalf of their merchant banking subsidiaries, these
functions should be subject to the same procedures and safeguards as would be applicable to
other constituents. Accordingly, full particulars should be available with the subsidiaries of banks
of the manner in which the transactions have been executed. Banks should also issue suitable
instructions in this regard to the department/office undertaking the custodial functions on behalf
of their subsidiaries.
1.3.3 Portfolio Management on behalf of clients
i) The general powers vested in banks to operate PMS and similar schemes have been
withdrawn. No bank should, therefore, restart or introduce any new PMS or similar scheme in
future without obtaining specific prior approval of the Reserve Bank. However, bank-sponsored
NBFCs are allowed to offer discretionary PMS to their clients, on a case-to-case basis.
Applications in this regard should be submitted to the Department of Banking Operations and
Development (DBOD), RBI, Central Office, Fort, Mumbai – 400 001.
ii) The following conditions are to be strictly observed by the banks operating PMS or
similar scheme with the specific prior approval of the Reserve Bank:
(a) PMS should be entirely at the customer's risk, without guaranteeing, either
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directly or indirectly, a pre-determined return.
(b) Funds should not be accepted for portfolio management for a period less than one year.
(c) Portfolio funds should not be deployed for lending in call/notice money; interbank term deposits and bills rediscounting markets and lending to/placement with corporate bodies.
(d) Banks should maintain client wise account/record of funds accepted for management and investments made there against and the portfolio clients should be entitled to get a statement of account.
(e) Bank's own investments and investments belonging to PMS clients should be kept distinct from each other, and any transactions between the bank's investment account and client's portfolio account should be strictly at market rates.
(f)There should be a clear functional separation of trading and back office functions relating to banks’ own investment accounts and PMS clients' accounts.
iii) PMS clients' accounts should be subjected by banks to a separate audit by external
auditors as covered in paragraph 1.1.5 (a).
iv) Banks should note that violation of the Reserve Bank instructions will be viewed
seriously and will invite deterrent action against the banks, which will include raising of reserve
requirements, withdrawal of facility of refinance from the Reserve Bankand denial of access to
money markets, apart from prohibition from undertaking PMS activity.
v) Further, the aforesaid instructions will apply, mutatis mutandis, to the subsidiaries of
banks except where they are contrary to specific regulations of the Reserve Bankor SEBI,
governing their operations.
vi) Banks/merchant banking subsidiaries of banks operating PMS or similar scheme with
the specific prior approval of the Reserve Bankare also required to comply with the guidelines
contained in the SEBI (Portfolio Managers) Rules and Regulations, 1993 and those issued from
time to time.
1.3.4 Investment Portfolio of banks - transactions in Government Securities
In the light of fraudulent transactions in the guise of Government Securities transactions in
physical format by a few co-operative banks with the help of some broker entities, it has been
decided to accelerate the measures for further reducing the scope of trading in physical forms.
These measures are as under:
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(i) For banks, which do not have SGL account with the Reserve Bank, only one gilt account can be opened.
(ii) In case the gilt accounts are opened with a SCB, the account holder has to open a designated funds account (for all gilt account related transactions) with the same bank.
(iii) The entities maintaining the gilt / designated funds accounts will be required to ensure availability of clear funds in the designated funds accounts for purchases and of sufficient securities in the gilt account for sales before putting through the transactions.
(iv) No transactions by the bank should be undertaken in physical form with any broker.
(v) Banks should ensure that brokers approved for transacting in Government Securities are registered with the debt market segment of NSE/BSE/OTCEI.
2. Classification
i)The entire investment portfolio of the banks (including SLR securities and non-
SLRsecurities) should be classified under three categories
viz. ‘Held to Maturity’,
‘Available for Sale’ and
‘Held for Trading’.
• However, in the balance sheet, the investments will continue to be disclosed as per the existing six classifications:
viz. a) Government securities,
b) Other approved securities,
c) Shares,
d) Debentures & Bonds,
e) Subsidiaries/ joint ventures and
f) Others (CP, Mutual Fund Units, etc.).
ii) Banks should decide the category of the investment at the time of acquisition and
the decision should be recorded on the investment proposals.
2.1 Held to Maturity
i) The securities acquired by the banks with the intention to hold them up to maturity
will be classified under ‘Held to Maturity (HTM)’.
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ii) Banks are allowed to include investments included under HTM category upto 25
per cent of their total investments.
The following investments are required to be classified under HTM but are not
accounted for the purpose of ceiling of 25 per cent specified for this category:
(a) Re-capitalisation bonds received from the Government of India towards their re- capitalisation requirement and held in their investment portfolio. This will not include re-capitalisation bonds of other banks acquired for investment purposes.
(b) Investment in subsidiaries and joint ventures (a Joint Venture would be one in which the bank, along with its subsidiaries, holds more than 25 percent of the equity).
(c) Investment in the long-term bonds (with a minimum residual maturity of seven years) issued by companies engaged in infrastructure activities. The minimum residual maturity of seven years should be at the time of investment in these bonds. Once invested, banks may continue to classify these investments under HTM category even if the residual maturity falls below seven years subsequently.
iii) Banks are permitted to exceed the limit of 25 per cent of total investment under HTM
category provided:
(a) the excess comprises only of SLR securities, and
(b) the total SLR securities held in the HTM category is not more than 24.50 per cent of their Demand and Time Liabilities (DTL) as on the last Friday of the second preceding fortnight.
iv) The non-SLR securities, held as part of HTM as on September 2, 2004 may
remainin that category. No fresh non-SLR securities, are permitted to be included in
HTM, except the following:
(a)Fresh re-capitalisation bonds received from the Government of India, towards their re-capitalisation requirement and held in their investment portfolio. This will not include re-capitalisationbonds of other banks acquired for investment purposes.
(b) Fresh investment in the equity of subsidiaries and joint ventures.
(c) RIDF / SIDBI/RHDF deposits.
(d) Investment in long-term bonds (with a minimum residual maturity ofseven years) issued by companies engaged in infrastructure activities.
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V)To sum up, banks may hold the following securities under HTM:
(a)SLR Securities upto 25 percent of their DTL as on the last Friday of the
second preceding fortnight.
(b) Non-SLR securities included under HTM as on September 2, 2004.
(c) Fresh re-capitalisation bonds received from the Government of India towards their re-capitalisation requirement and held in Investment portfolio.
(d) Fresh investment in the equity of subsidiaries and joint ventures.
(e) RIDF/SIDBI/RHDF deposits.
(f) Investment in long-term bonds (with a minimum residual maturity of seven
years) issued by companies engaged in infrastructure activities.
(vi) Profit on sale of investments in this category should be first taken to the Profit & Loss
Account, and thereafter be appropriated to the ‘Capital Reserve Account’. It is clarified that the
amount so appropriated would be net of taxes and the amount required to be transferred to
Statutory Reserves.Loss on sale will be recognised in the Profit & Loss Account.
2.2 Available for Sale & Held for Trading
i) The securities acquired by the banks with the intention to trade by taking advantage of
the short-term price/interest rate movements will be classified under ‘Held for Trading
(HFT)’.
ii) The securities which do not fall within the above two categories will be classified under
‘Available for Sale (AFS)’.
iii) The banks will have the freedom to decide on the extent of holdings under HFT and
AFS. This will be decided by them after considering various aspects such as basis of
intent, trading strategies, risk management capabilities, tax planning, manpower skills,
capital position.
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32 Prudential Norms on Investments - 2014
iv) The investments classified under HFT would be those from which the bank expects to
make a gain by the movement in interest rates/market rates. These securities are to be
sold within 90 days.
v) Profit or loss on sale of investments in both the categories will be taken to the Profit &
Loss Account.
2.3 Shifting among categories
i) Banks may shift investments to/from HTM with the approval of the Board of Directors
once a year. Such shifting will normally be allowed at the beginning of the accounting year.
No further shifting to/from HTM will be allowed during the remaining part of that accounting
year.
ii) If the value of sales and transfers of securities to/from HTM category exceeds 5 per
cent of the book value of investments held in HTM category at the beginning of the year,
banks should disclose the market value of the investments held in the HTM category and
indicate the excess of book value over market value for which provision is not made. This
disclosure is required to be made in ‘Notes to Accounts’ in banks’ audited Annual Financial
Statements. However, the one-time transfer of securities to/from HTM category with the
approval of Board of Directors permitted to be undertaken by banks at the beginning of the
accounting year and sales to the Reserve Bank of India under pre-announced OMO
auctions and repurchase of Government securities by Government of India from banks will
be excluded from the 5 per cent cap.
iii) Banks may shift investments from AFS to HFT with the approval of their Board of
Directors/ ALCO/ Investment Committee. In case of exigencies, such shifting may be done
with the approval of the Chief Executive of the bank/Head of the ALCO, but should be
ratified by the Board of Directors/ ALCO.
iv) Shifting of investments from HFT to AFS is generally not allowed. However, it will be
permitted only under exceptional circumstances like not being able to sell the security
within 90 days due to tight liquidity conditions, or extreme volatility, or market becoming
unidirectional. Such transfer is permitted only with the approval of the Board of Directors/
ALCO/ Investment Committee.
(v) Transfer of scrips from AFS / HFT category to HTM category should be made at the
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lower of book value or market value. In other words, in cases where the market value is
higher than the book value at the time of transfer, the appreciation should be ignored and
the security should be transferred at the book value. In cases where the market value is
less than the book value, the provision against depreciation held against this security
(including the additional provision, if any, required based on valuation done on the date of
transfer) should be adjusted to reduce the book value to the market value and the security
should be transferred at the market value.
In the case of transfer of securities from HTM to AFS / HFT category,
(a) If the security was originally placed under the HTM category at a discount, it may be
transferred to AFS / HFT category at the acquisition price / book value. (It may be noted
that as per existing instructions banks are not allowed to accrue the discount on the
securities held under HTM category and, therefore, such securities would continue to be
held at the acquisition cost till maturity). After transfer, these securities should be
immediately re-valued and resultant depreciation, if any, may be provided.
(b) If the security was originally placed in the HTM category at a premium, it may be
transferred to the AFS / HFT category at the amortised cost. After transfer, these securities
should be immediately re-valued and resultant depreciation, if any, may be provided.
In the case of transfer of securities from AFS to HFT category or vice-versa, the securities need
not be re-valued on the date of transfer and the provisions for the accumulated depreciation, if
any, held may be transferred to the provisions for depreciation against the HFT securities and
vice-versa.
3. Valuation
3.1 Held to Maturity
i) Investments classified under HTM need not be marked to market and will be carried at
acquisition cost, unless it is more than the face value, in which case the premium should be
amortised over the period remaining to maturity. The banks should reflect the amortised amount
in ‘Schedule 13 – Interest Earned: Item II – Income on Investments’, as a deduction. However,
the deduction need not be disclosed separately. The book value of the security should continue
to be reduced to the extent of the amount amortised during the relevant accounting period.
ii) Banks should recognise any diminution, other than temporary, in the value of their
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investments in subsidiaries/ joint ventures, which are included under HTM and provide
therefor.Such diminution should be determined and provided for each investment
individually.
iii) The need to determine whether impairment has occurred is a continuous process and the
need for such determination will arise in the following circumstances:
(a) On the happening of an event which suggests that impairment has occurred. This would
include:
(i) the company has defaulted in repayment of its debt obligations.
(ii) the loan amount of the company with any bank has been restructured.
(iii) the credit rating of the company has been downgraded to below investment
grade.
(b) When the company has incurred losses for a continuous period of three years and the net
worth has consequently been reduced by 25% or more.
(c) In the case of new company or a new project when the originally projected date of achieving
the breakeven point has been extended i.e., the company or the project has not achieved
break-even within the gestation period as originally envisaged.
When the need to determine whether impairment has occurred arises in respect of a
subsidiary, joint venture or a material investment, the bank should obtain a valuation of the
investment by a reputed/qualified valuer and make provision for the impairment, if any.
3.2Available for Sale
The individual scrips in the Available for Sale category will be marked to market at quarterly or
at more frequent intervals. Domestic Securities under this category shall be valued scrip-wise
and depreciation/ appreciation shall be aggregated for each classification referred to in item 2(i)
above.Foreign investments under this category shall be valued scrip-wise and depreciation/
appreciation shall be aggregated for five classifications (viz. Government securities (including
local authorities), Shares, Debentures & Bonds, Subsidiaries and/or joint ventures abroad and
Other investments (to be specified)). Further, the investment in a particular classification, both in
domestic and foreign securities, may be aggregated for the purpose of arriving at net
depreciation/appreciation of investments under that category.Net depreciation, if any, shall be
provided for. Net appreciation, if any, should be ignored. Net depreciation required to be
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provided for in any one classification should not be reduced on account of net appreciation in
any other classification. The banks may continue to report the foreign securities under three
categories (Government securities (including local authorities), Subsidiaries and/or joint
ventures abroad and other investments (to be specified)) in the balance sheet. The book value
of the individual securities would not undergo any change after the marking of market.
3.3 Held for Trading
The individual scrips in the Held for Trading category will be marked to market at monthly or at
more frequent intervals and provided for as in the case of those in the Available for Sale
category. Consequently, the book value of the individual securities in this category would also
not undergo any change after marking to market.
3.4 Investment Fluctuation Reserve& Investment Reserve Account
Investment Fluctuation Reserve
( i )With a view to building up of adequate reserves to guard against any possiblereversal of
interest rate environment in future due to unexpected developments, banks were advised to
build up Investment Fluctuation Reserve (IFR) of a minimum 5 per cent of the investment
portfolio within a period of 5 years.
(ii)To ensure smooth transition to Basel II norms, banks were advised in June 24,2004 to
maintain capital charge for market risk in a phased manner over a two year period, as
under:
(a) In respect of securities included in the HFT category, open gold position limit,
open foreign exchange position limit, trading positions in derivatives and
derivatives entered into for hedging trading book exposures by March 31, 2005,
and
(b) In respect of securities included in the AFS category by March 31, 2006.
(iii) With a view to encourage banks for early compliance with the guidelines for
maintenance of capital charge for market risks, it was advised in April 2005 that banks
which have maintained capital of at least 9 per cent of the risk weighted assets for both
credit risk and market risk for both HFT (items as indicated at (a) above) and AFS
categories may treat the balance in excess of 5 per cent of securities included under HFT
and AFS categories, in the IFR, as Tier I capital. Banks satisfying the above were allowed
to transfer the amount in excess of the said 5 per cent in the IFR to Statutory Reserve.
(iv)Banks were advised in October 2005 that, if they have maintained capital of at least 9
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per cent of the risk weighted assets for both credit risk and market risks forbothHFT (items
as indicated at 3.4 ii(a) above) and AFS category as on March 31, 2006, they would be
permitted to treat the entire balance in the IFR as Tier I capital. For this purpose, banks may
transfer the balance in the IFR ‘below the line’ in the Profit and Loss Appropriation Account
to Statutory Reserve, General Reserve or balance of Profit & Loss (P&L) Account.
Investment Reserve Account (IRA)
(v) In the event, provisions created on account of depreciation in the ‘AFS’ or ‘HFT’
categories are found to be in excess of the required amount in any year, the excess should
be credited to the P&L Account and an equivalent amount (net of taxes, if any and net of
transfer to Statutory Reserves as applicable to such excess provision) should be
appropriated to an IRA Account in Schedule 2 – “Reserves & Surplus” under the head
“Revenue and Other Reserves”, and would be eligible for inclusion under Tier-II within the
overall ceiling of 1.25 per cent of total Risk Weighted Assets prescribed for General
Provisions/ Loss Reserves.
(vi) Banks may utilise IRA as follows:
The provisions required to be created on account of depreciation in the AFS and HFT
categories should be debited to the P&L Account and an equivalent amount (net of tax
benefit, if any, and net of consequent reduction in the transfer to Statutory Reserve), may
be transferred from the IRA to the P&L Account.
Illustratively, banks may draw down from the IRA to the extent of provision made during
the year towards depreciation in investment in AFS and HFT categories (net of taxes, if
any, and net of transfer to Statutory Reserves as applicable to such excess provision). In
other words, a bank which pays a tax of 30 per cent and should appropriate 25 per cent
of the net profits to Statutory Reserves, can draw down Rs.52.50 from the IRA, if the
provision made for depreciation in investments included in the AFS and HFT categories
is Rs.100.
(vii) The amounts debited to the P&L Account for provision should be debited under the
head ‘Expenditure - Provisions & Contingencies’. The amount transferred from the IRA to
the P&L Account, should be shown as ‘below the line’ item in the Profit and Loss
Appropriation Account, after determining the profit for the year. Provision towards any
erosion in the value of an asset is an item of charge on the profit and loss account, and
hence should appear in that account before arriving at the profit for the accounting period.
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Adoption of the following would not only be adoption of a wrong accounting principle but
would, also result in a wrong statement of the profit for the accounting period:
(a) the provision is allowed to be adjusted directly against an item of Reserve without being shown in the profit and loss account, OR
(b) a bank is allowed to draw down from the IRA before arriving at the profit for the accounting period (i.e., above the line),OR
(c) a bank is allowed to make provisions for depreciation on investment as a below the line item, after arriving at the profit for the period,
Hence none of the above options are permissible.
(viii) In terms of our guidelines on payment of dividend by banks, dividends should be
payable only out of current year's profit. The amount drawn down from the IRA will,
therefore, not be available to a bank for payment of dividend among the shareholders.
However, the balance in the IRA transferred ‘below the line’ in the Profit and Loss
Appropriation Account to Statutory Reserve, General Reserve or balance of P&L Account
would be eligible to be reckoned as Tier I capital.
3.5 Market value
The ‘market value’ for the purpose of periodical valuation of investments included in the AFS
and HFT categories would be the market price of the scrip as available from the trades/ quotes
on the stock exchanges, SGL account transactions, price list of RBI, prices declared by Primary
Dealers Association of India (PDAI) jointly with the Fixed Income Money Market and Derivatives
Association of India (FIMMDA) periodically. In respect of unquoted securities, the procedure as
detailed below should be adopted.
3.6 Unquoted SLR securities
3.6.1 Central Government Securities
i) Banks should value the unquoted Central Government securities on the basis of the
prices/ YTM rates put out by the PDAI/ FIMMDA at periodical intervals.
ii) The 6.00 per cent Capital Indexed Bonds may be valued at “cost”, as defined in circular
DBOD.No.BC.8/12.02.001/97-98 dated January 22, 1998 and BC.18/12.02.001/2000-
2001 dated August 16, 2000.
iii) Treasury Bills should be valued at carrying cost.
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3.6.2 State Government Securities
State Government securities will be valued applying the Yield to Maturity (YTM) method by
marking it up by 25 basis points above the yields of the Central Government Securities of
equivalent maturity put out by PDAI/ FIMMDA periodically.
3.6.3 Other ‘approved’ Securities
Other approved securities will be valued applying the YTM method by marking it up by 25 basis
points above the yields of the Central Government Securities of equivalent maturity put out by
PDAI/ FIMMDA periodically.
3.7 Unquoted Non-SLR securities
3.7.1 Debentures/ Bonds
All debentures/ bonds should be valued on the YTM basis. Such debentures/ bonds may be of
different companies having different ratings. These will be valued with appropriate mark-up over
the YTM rates for Central Government Securities as put out by PDAI/ FIMMDA periodically. The
mark-up will be graded according to the ratings assigned to the debentures/ bonds by the rating
agencies subject to the following: -
(a) The rate used for the YTM for rated debentures/ bonds should be at least 50 basis points above the rate applicable to a Government of India loan of equivalent maturity.
NOTE:
The special securities, which are directly issued by Government of India to the beneficiary
entities, which do not carry SLR status, may be valued at a spread of 25 basis points above the
corresponding yield on Government of India Securities, with effect from the financial year 2008 -
09. At present, such special securities comprise Oil Bonds, Fertilizer Bonds, bonds issued to the
State Bank of India (during the recent rights issue), Unit Trust of India, Industrial Finance
Corporation of India Ltd., Food Corporation of India, Industrial Investment Bank of India Ltd., the
erstwhile Industrial Development Bank of India and the erstwhile Shipping Development Finance
Corporation.
(b) The rate used for the YTM for unrated debentures/ bonds should not be less than the rate applicable to rated debentures/ bonds of equivalent maturity. The mark-up for the unrated debentures/ bonds should appropriately reflect the credit risk borne by the bank.
(c) Where the debentures/ bondsare quoted and there have been transactions within 15 days prior to the valuation date, the value adopted should not be higher than the rate at which the transaction is recorded on the stock exchange.
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3.7.2 Bonds issued by State Distribution Companies (Discoms) under Financial Restructuring Plan
(i) If these bonds are traded and quoted, they will be valued at their current ‘Market Value’ as
defined in paragraph 3.5 of this Master Circular.
(ii) In case the bonds are not traded and quoted, they will be valued on YTM basis. The relevant
YTM will be YTM rates for Central Government Securities of equivalent maturities as put out by
FIMMDA on the valuation day with the following mark-ups:
(a) During the period when bonds’ liabilities are with the State Discoms and
If guaranteed by respective State Governments – 75 basis points
If not guaranteed by respective State Governments – 100 basis points
(b)During the period when bonds’ liabilities are with the respective State Governments –
50 basis points.
3.7.3 Zero coupon bonds (ZCBs)
ZCBs should be shown in the books at carrying cost, i.e., acquisition cost plus discount accrued
at the rate prevailing at the time of acquisition, which may be marked to market with reference to
the market value. In the absence of market value, the ZCBs may be marked to market with
reference to the present value of the ZCB. The present value of the ZCBs may be calculated by
discounting the face value using the ‘Zero Coupon Yield Curve’, with appropriate mark up as per
the zero coupon spreads put out by FIMMDA periodically. In case the bank is still carrying the
ZCBs at acquisition cost, the discount accrued on the instrument should be notionally added to
the book value of the scrip, before marking it to market.
3.7.4 Preference Shares
The valuation of preference shares should be on YTM basis. The preference shares will be
issued by companies with different ratings. These will be valued with appropriate mark-up over
the YTM rates for Central Government Securities put out by the PDAI/FIMMDA periodically. The
mark-up will be graded according to the ratings assigned to the preference shares by the rating
agencies subject to the following:
a) The YTM rate should not be lower than the coupon rate/ YTM for a GoI loan of
equivalent maturity.
b) The rate used for the YTM for unrated preference shares should not be less than
the rate applicable to rated preference shares of equivalent maturity. The mark-up for the
unrated preference shares should appropriately reflect the credit risk borne by the bank.
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c) Investments in preference shares as part of the project finance may be valued at
par for a period of two years after commencement of production or five years after
subscription whichever is earlier.
d) Where investment in preference shares is as part of rehabilitation, the YTM rate
should not be lower than 1.5% above the coupon rate/ YTM for GoI loan of equivalent
maturity.
e) Where preference dividends are in arrears, no credit should be taken for accrued
dividends and the value determined on YTM should be discounted by at least 15 per
cent if arrears are for one year, and more if arrears are for more than one year. The
depreciation/provision requirement arrived at in the above manner in respect of non-
performing shares where dividends are in arrears shall not be allowed to be set-off
against appreciation on other performing preference shares.
f) The preference share should not be valued above its redemption value.
g) When a preference share has been traded on stock exchange within 15 days
prior to the valuation date, the value should not be higher than the price at which the
share was traded.
3.7.5 Equity Shares
The equity shares in the bank's portfolio should be marked to market preferably on a daily basis,
but at least on a weekly basis. Equity shares for which current quotations are not available or
where the shares are not quoted on the stock exchanges, should be valued at break-up value
(without considering ‘revaluation reserves’, if any) which is to be ascertained from the
company’s latest balance sheet (which should not be more than one year prior to the date of
valuation). In case the latest balance sheet is not available the shares are to be valued at Re.1
per company.
3.7.6 Mutual Funds Units (MF Units)
Investment in quoted MF Units should be valued as per Stock Exchange quotations. Investment
in un-quoted MF Units is to be valued on the basis of the latest re-purchase price declared by
the MF in respect of each particular Scheme. In case of funds with a lock-in period, where
repurchase price/ market quote is not available, Units could be valued at Net Asset Value
(NAV). If NAV is not available, then these could be valued at cost, till the end of the lock- in
period. Wherever the re-purchase price is not available, the Units could be valued at the NAV of
the respective scheme.
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3.7.7 Commercial Paper
Commercial paper should be valued at the carrying cost.
3.7.8 Investments in Regional Rural Banks (RRBs)
Investment in RRBs is to be valued at carrying cost (i.e. book value) on a consistent basis.
3.8. Investment in securities issued by Securitisation Company (SC) / Reconstruction Company (RC)
When banks / FIs invest in the SRs / Pass-Through Certificates (PTCs) issued by SCs / RCs, in
respect of the financial assets sold by them to the SCs / RCs, the sale shall be recognised in
books of the banks / FIs at the lower of:
the redemption value of the SRs /PTCs, and
the Net Book Value (NBV) (i.e. Book value less provisions held), of the financial asset.
The above investment should be carried in the books of the bank / FI at the price as determined
above until its sale or realisation, and on such sale or realisation, the loss or gain must be dealt
with as under:
(i) if the sale to SC /RC is at a price below the NBV, the shortfall should be debited
to the P&L Account of that year.
(ii) If the sale is for a value higher than the NBV, the excess provision will not be
reversed but will be utilised to meet the shortfall / loss on account of sale of other financial
assets to SC / RC. All instruments received by banks / FIs from SC / RC as sale
consideration for financial assets sold to them and also other instruments issued by SC /
RC in which banks / FIs invest will be in the nature of non-SLR securities. Accordingly, the
valuation, classification and other norms applicable to investment in non-SLR instruments
prescribed by the Reserve Bank from time to time would be applicable to bank’s / FI’s
investment in debentures / bonds / security receipts / PTCs issued by SC / RC. However,
if any of the above instruments issued by SC / RC is limited to the actual realisation of the
financial assets assigned to the instruments in the concerned scheme the bank / FI shall
reckon the Net Asset Value (NAV), obtained from SC / RC from time to time, for valuation
of such investments.
3.9 Valuation and classification of banks’ investment in VCFs
3.9.1 The quoted equity shares / bonds/ units of VCFs in the bank's portfolio should be held
under AFS and marked to market preferably on a daily basis, but at least on a weekly basis, in
line with valuation norms for other equity shares as per existing instructions.
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3.9.2 Banks’ investments in unquoted shares/bonds/units of VCFs made after August 23, 2006
(i.e., issuance of guidelines on valuation, classification of investments in VCFs) will be classified
under HTM for initial period of three years and will be valued at cost during this period. For the
investments made before issuance of these guidelines, the classification would be done as per
the existing norms.
3.9.3 For this purpose, the period of three years will be reckoned separately for each
disbursement made by the bank to VCF as and when the committed capital is called up.
However, to ensure conformity with the existing norms for transferring securities from HTM,
transfer of all securities which have completed three years as mentioned above will be
effectedat the beginning of the next accounting year in one lot to coincide with the annual
transfer of investments from HTM category.
3.9.4 After three years, the unquoted units/shares/bonds should be transferred to AFS category
and valued as under:
i) Units: In the case of investments in the form of units, the valuation will be done at
the NAV shown by the VCF in its financial statements. Depreciation, if any, on the units
based on NAV has to be provided at the time of shifting the investments to AFS category
from HTM category as also on subsequent valuations which should be done at quarterly
or more frequent intervals based on the financial statements received from the VCF. At
least once in a year, the units should be valued based on the audited results. However, if
the audited balance sheet/ financial statements showing NAV figures are not available
continuously for more than 18 months as on the date of valuation, the investments are to
be valued at Rupee 1per VCF.
ii) Equity: In the case of investments in the form of shares, the valuation can be done
at the required frequency based on the break-up value (without considering ‘revaluation
reserves’, if any) which is to be ascertained from the company’s (VCF’s) latest balance
sheet (which should not be more than 18 months prior to the date of
valuation).Depreciation, if any on the shares has to be provided at the time of shifting the
investments to AFS category as also on subsequent valuations which should be done at
quarterly or more frequent intervals. If the latest balance sheet available is more than 18
months old, the shares are to be valued at Rupee 1per company.
iii) Bonds: The investment in the bonds of VCFs, if any, should be valued as per
prudential norms for classification, valuation and operation of investment portfolio by
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43 Prudential Norms on Investments - 2014
banks issued by the Reserve Bank from time to time.
3.9.5 Valuation norms on conversion of outstanding
Equity, debentures and other financial instruments acquired by way of conversion of outstanding
principal and / or interest should be classified in the AFS category, and valued in accordance
with the extant instructions on valuation of banks' investment portfolio, except to the extent that
(a) equity may be valued as per market value, if quoted, (b) in cases, where equity is not
quoted, valuation may be at breakup value in respect of standard assets and in respect of
substandard / doubtful assets, equity may be initially valued at Rupee1 and at breakup value
after restoration / up gradation to standard category.
3.10 Non-Performing Investments (NPI)
3.10.1 In respect of securities included in any of the three categories where interest/ principal is
in arrears,banks should not reckon income on the securities and should also make appropriate
provisions for the depreciation in the value of the investment. The banks should not set-off the
depreciation requirement in respect of these non-performing securities against the appreciation
in respect of other performing securities.
3.10.2 An NPI, similar to a non performing advance (NPA), is one where:
(i) Interest/ installment (including maturity proceeds) is due and remains unpaid for
more than 90 days.
(ii) The above would apply mutatis-mutandis to preference shares where the fixed
dividend is not paid.If the dividend on preference shares (cumulative or non-
cumulative) is not declared/paid in any year it would be treated as due/unpaid in
arrears and the date of balance sheet of the issuer for that particular year would be
reckoned as due date for the purpose of asset classification.
(iii) In the case of equity shares, in the event the investment in the shares of any
company is valued at Re.1 per company on account of the non-availability of the
latest balance sheet in accordance with the instructions contained in paragraph 28
of the Annex to the circular DBOD.BP.BC.32/ 21.04.048/ 2000-01 dated October 16,
2000, those equity shares would also be reckoned as NPI.
(iv) If any credit facility availed by the issuer is NPA in the books of the bank, investment
in any of the securities, including preference shares issued by the same issuer
would also be treated as NPI and vice versa. However, if only the preference shares
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44 Prudential Norms on Investments - 2014
are classified as NPI, the investment in any of the other performing securities issued
by the same issuer may not be classified as NPI and any performing credit facilities
granted to that borrower need not be treated as NPA.
(v) The investments in debentures/bonds, which are deemed to be in the nature of
advance, would also be subjected to NPI norms as applicable to investments.
(vi) In case of conversion of principal and/or interest into equity, debentures, bonds, etc.,
such instruments should be treated as NPA abinitio in the same asset classification
category as the loan if the loan's classification is substandard or doubtful on
implementation of the restructuring package and provision should be made as per
the norms.
3.10.3 State Government guaranteed investments
For the year ending March 31, 2005, investment in State Government guaranteed securities
would attract prudential norms for identification of NPI and provisioning, if interest and/or
principal or any other amount due to the bank remains overdue for more than 180 days. With
effect from the year ending March 31, 2006, investment in State Government guaranteed
securities, including those in the nature of ‘deemed advance’, will attract prudential norms for
identification of NPI and provisioning, when interest/ instalment of principal (including maturity
proceeds) or any other amount due to the bank remains unpaid for more than 90 days.
The prudential treatment for Central Government Guaranteed bonds has to be identical to
Central Government guaranteed advances. Hence, bank’s investments in bonds guaranteed by
Central Government need not be classified as NPI until the Central Government has repudiated
the guarantee when invoked. However, this exemption from classification as NPI is not for the
purpose of recognition of income.
4. Uniform accounting for Repo / Reverse Repo transactions
4.1 The revised accounting guidelines effective from April 1, 2010 are applicable to market repo
transactions in Government Securities and corporate debt securities. These accounting norms
will, however, not apply to repo / reverse repo transactions conducted under the Liquidity
Adjustment Facility (LAF) with the Reserve Bank.
4.2 Market participants may undertake repos from any of the three categories of investments,
viz., Held For Trading, Available For Sale and Held To Maturity.
4.3 The economic essence of a repo transaction, viz., borrowing (lending) of funds by selling
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45 Prudential Norms on Investments - 2014
(purchasing) securities shall be reflected in the books of the repo participants, by accounting the
same as collateralized lending and borrowing transaction, with an agreement to repurchase, on
the agreed terms. Accordingly, the repo seller, i.e., borrower of funds in the first leg, shall not
exclude the securities sold under repo but continue to carry the same in his investment account
(please see the illustration given in the Annex) reflecting his continued economic interest in the
securities during the repo period. On the other hand, the repo buyer, i.e., lender of funds in the
first leg, shall not include the securities purchased under repo in his investment account but
show it in a separate sub-head (please see the Annex). The securities would, however, be
transferred from the repo seller to repo buyer as in the case of normal outright sale/purchase
transactions and such movement of securities shall be reflected using the Repo/Reverse Repo
Accounts and contra entries. In the case of repo seller, the Repo Account is credited in the first
leg for the securities sold (funds received), while the same is reversed when the securities are
repurchased in the second leg. Similarly, in the case of repo buyer, the Reverse Repo Account
is debited for the amount of securities purchased (funds lent) and the same is reversed in the
second leg when the securities are sold back.
4.4 The first leg of the repo transaction should be contracted at the prevailing market rates. The
reversal (second leg) of the transaction shall be such that the difference between the
consideration amounts of first and second legs should reflect the repo interest.
4.5 The accounting principles to be followed while accounting for repo / reverse repo
transactions are as under:
(i) Coupon /Discount
The repo seller shall continue to accrue the coupon/discount on the securities sold under repo
even during the repo period while the repo buyer shall not accrue the same.
In case the interest payment date of the security offered under repo falls within the repo period,
the coupons received by the buyer of the security should be passed on to the seller of the
security on the date of receipt as the cash consideration payable by the seller in the second leg
does not include any intervening cash flows.
(ii) Repo Interest Income / Expenditure
After the second leg of the repo / reverse repo transaction is over, the difference between
consideration amounts of the first leg and second leg of the repo shall be reckoned as Repo
Interest Income / Expenditure in the books of the repo buyer / seller respectively; and the
balance outstanding in the Repo Interest Income / Expenditure account should be transferred
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46 Prudential Norms on Investments - 2014
to the P&L Account as an income or an expenditure. As regards repo / reverse repo
transactions outstanding on the balance sheet date, only the accrued income / expenditure till
the balance sheet date should be taken to the P& L account. Any repo income / expenditure for
the remaining period should be reckoned for the next accounting period.
(iii) Marking to Market
The repo seller shall continue to mark to market the securities sold under repo transactions as
per the investment classification of the security. To illustrate, in case the securities sold by
banks under repo transactions are out of the Available for Sale category, then the mark to
market valuation for such securities should be done at least once a quarter. For entities which
do not follow any investment classification norms, the valuation for securities sold under repo
transactions may be in accordance with the valuation norms followed by them in respect of
securities of similar nature.
4.6 Accounting Methodology
The accounting methodology to be followed along with the illustrations is given in Annexes VII-
A and VII-B. Participants using more stringent accounting principles may continue using the
same principles. Further, to obviate the disputes arising out of repo transactions, the participants
should enter into bilateral Master Repo Agreement as per the documentation finalized by
FIMMDA. The Master Repo Agreement finalised by FIMMDA is not mandatory for repo
transactions in Government Securities settling through a Central Counter Party (CCP) [e.g.
(CCIL), having various safeguards like haircut, MTM price, margin, Multilateral netting, closing
out, right to set off, settlement guarantee fund/ collaterals, defaults, risk management and
dispute resolution/ arbitration etc. However, Master Repo Agreement is mandatory for repo
transactions in Corporate Debt Securities, which are settled bilaterally without involving a CCP.
4.7 Classification of Accounts
Banks shall classify the balances in Repo A/c under Schedule 4 under item I (ii) or I (iii) as
appropriate. Similarly, the balances in Reverse Repo A/c shall be classified under Schedule 7
under item I (ii) a or I (ii) b as appropriate. The balances in Repo interest expenditure A/c and
Reverse Repo interest income A/c shall be classified under Schedule 15 (under item II or III as
appropriate) and under Schedule 13 (under item III or IV as appropriate) respectively. The
balance sheet classification for other participants shall be governed by the guidelines issued by
the respective regulators.
4.8 Disclosure
The disclosures as prescribed in Annex VI should be made by banks in the “Notes on Accounts’
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47 Prudential Norms on Investments - 2014
to the Balance Sheet.
4.9 Treatment for Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR)
(i) Government securities:
The regulatory treatment of market repo transactions in Government securities will continue as
hitherto, i.e., the funds borrowed under repo will continue to be exempt from CRR/SLR
computation and the security acquired under reverse repo shall continue to be eligible for SLR.
(ii) Corporate debt securities:
In respect of repo transactions in corporate debt securities, as already advised vide
IDMD.DOD.05/1 1.08.38/2009-10 dated January 8, 2010,
a. The amount borrowed by a bank through repo shall be reckoned as part of its Demand and
Time Liabilities (DTL) and the same shall attract CRR/SLR.
b. The borrowings of a bank through repo in corporate bonds shall be reckoned as its liabilities
for reserve requirement and, to the extent these liabilities are to the banking system, they shall
be netted as per clause (d) of the explanation under section 42(1) of the RBI Act, 1934. Such
borrowings shall, however, be subject to the prudential limits for inter-bank liabilities.
5. General
5.1 Income recognition
i) Banks may book income on accrual basis on securities of corporate bodies/ public sector
undertakings in respect of which the payment of interest and repayment of principal have been
guaranteed by the Central Government or a State Government, provided interest is serviced
regularly and as such is not in arrears.
ii) Banks may book income from dividend on shares of corporate bodies on accrual basis
provided dividend on the shares has been declared by the corporate body in its Annual General
Meeting and the owner's right to receive payment is established.
iii) Banks may book income from Government Securities and bonds and debentures of
corporate bodies on accrual basis, where interest rates on these instruments are predetermined
and provided interest is serviced regularly and is not in arrears.
iv) Banks may book income from units of mutual funds on cash basis.
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5.2 Broken Period Interest
Banks should not capitalise the Broken Period Interest paid to seller as part of cost, but treat it
as an item of expenditure under P&L Account in respect of investments in Government and
other approved securities. It is to be noted that the above accounting treatment does not take
into account the tax implications and, hence, the banks should comply with the requirements of
Income Tax Authorities in the manner prescribed by them.
5.3 Dematerialised Holding
Banks should settle the transactions in securities as notified by SEBI only through depositories.
After the commencement of mandatory trading in dematerialised form, banks would not be able
to sell the shares of listed companies if they were held in physical form. In order to extend the
dematerialised form of holding to other instruments like bonds, debentures and equities, it was
decided that, with effect from October 31, 2001, banks, FIs, PDs and SDs would be permitted to
make fresh investments and hold bonds and debentures, privately placed or otherwise, only in
dematerialised form. Outstanding investments in scrip forms were required to be converted into
dematerialised form by June 30, 2002. As regards equity instruments, banks were required to
convert all their equity holding in scrip form into dematerialised form by December 31, 2004.
5.4 Investment in Zero Coupon Bonds and Low Coupon Bonds issued by corporates
In view of high credit risk involved in long term Zero Coupon Bonds (ZCBs) issued by corporates
(including those issued by NBFCs) banks should not invest in such ZCBs unless the issuer
builds up sinking fund for all accrued interest and keeps it invested in liquid
investments/securities (Government bonds). It had come to our notice that banks are investing
in bonds which carry very low coupons that are not market related and therefore are redeemed
at maturity with substantial premium. These bonds, therefore, carry credit risk similar to ZCBs.
Banks should not invest in such Low Coupon Bonds unless the issuer builds up a sinking fund
to the extent of the difference in the accrued interest calculated on the basis of YTM applicable
to the bond and the actual coupon payable on the bond and keeps it invested in liquid
investments/ securities (Government bonds). Further, banks should also put in place
conservative limits for their investments in such bonds.
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49 Prudential Norms on Investments - 2014
Annex I-A Para 1.1 i) (a)
Short sale in Government Securities
Banks may undertake short sale of Central Government dated securities, subject to the short
position being covered within a maximum period of three months, including the day of trade.
Such short positions shall be covered by outright purchase of an equivalent amount of the same
security or through a long position in the When Issued (WI) market or allotment in primary
auction. However, it may be noted that the closure of the long position in WI market (by sale of
the WI securities) would lead to a reestablishment of short position to the extent of the sale in
the WI market. The short positions may be reflected in ‘Securities Short Sold (SSS) A/c’,
specifically created for this purpose. For the purposes of this circular short sale and notional
short sale are defined as under:
‘Short Sale’ is defined as sale of securities one does not own. A bank can also undertake
'notional' short sale where it can sell a security short from HFT even if the security is held under
its HFT/AFS/HTM book. The resultant 'notional' short position would be subject to the same
regulatory requirements as in the case of a short sale. For the purpose of these guidelines, short
sale would include 'notional' short sale as well. The short sale by banks and the cover
transaction shall not affect the holdings and valuation of the same security in HFT/AFS/HTM
categories in any way.
Short sale transactions can be undertaken by banks, subject to the following conditions:
Minimum requirements:
In respect of short sales, banks shall ensure adherence to the following conditions:
a) The sale leg of the transaction should be executed only on the Negotiated Dealing
System – Order Matching (NDS-OM) platform. The cover leg of the short sale
transaction can, however, be executed either on or outside the NDS-OM platform.
b) The sale leg as well as the cover leg of the transaction should be accounted in the HFT
category.
c) Under no circumstances, should participants fail to deliver, on settlement date, the
securities sold short. Failures to deliver securities short sold shall be treated as an
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instance of ‘SGL bouncing’ and the concerned banks will be liable to disciplinary action
prescribed in respect of SGL bouncing, besides attracting such further regulatory action
as may be considered necessary.
d) At no point of time should a bank accumulate a short position (face value) in any security
in the HFT category in excess of the following limits:
i) 0.25 per cent of the total outstanding stock issued of each security in case of securities other than liquid securities.
ii) 0.50 per cent of the total outstanding stock issued of each security in case ofliquidsecurities.
e) Banks shall be entirely responsible for ensuring strict compliance with the above
prudential limits on real time basis for which they may put in place appropriate systems
and internal controls. The controls provided in the trading platform (NDS-OM) are merely
in the nature of additional tools and should not be cited as a reason for any breach of
internal or regulatory limits. The information regarding the outstanding stock of each
Government of India dated security is being made available on the RBI website (URL:
http://rbi.org.in/Scripts/NDSUserXsl.aspx). The list of liquid securities for compliance with
the limits shall be provided by FIMMDA from time to time.
f) Banks which undertake short sale transactions shall mark-to-market their entire HFT
portfolio, including the short positions, on a daily basis and account for the resultant
mark-to-market gains / losses as per the relevant guidelines for marking-to-market of the
HFT portfolio.
g) Gilt Accounts Holders (GAHs), under CSGL facility, are not permitted to undertake short
sales. Entities maintaining CSGL Accounts are required to ensure that no short sale is
undertaken by the GAHs.
Borrowing security (through the repo market) to meet delivery obligations:
Since securities that are short sold are to be invariably delivered on the settlement date,
participants are permitted to meet their delivery obligations by acquiring securities in therepo
market. Accordingly, with a view to enable participants to run short positions across settlement
cycles, banks have been permitted to use the securities acquired under a reverse repo to meet
the delivery obligation of the short sale transaction. While the reverse repos can be rolled over,
it is emphasised that the delivery obligations under the successive reverse repo contracts are
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51 Prudential Norms on Investments - 2014
also to be invariably met, failing which the concerned banks shall attract the regulatory action as
specified above. It may, however, be noted that the permission to use securities acquired under
reverse repo as above applies only to securities acquired under market repo and not to
securities acquired under RBI’s Liquidity Adjustment Facility.
Policy and internal control mechanisms:
Before actually undertaking transactions in terms of this circular, banks shall put in place a
written policy on short sale, which should be approved by their respective Boards of Directors.
The policy should lay down the internal guidelines which should include, inter alia, risk limits on
short position, an aggregate nominal short sale limit (in terms of Face Value) across all eligible
securities, stop loss limits, the internal control systems to ensure adherence to regulatory and
internal guidelines, reporting of short selling activity to the Board and the Reserve Bank,
procedure to deal with violations, etc. Banks shall also put in place a system to detect violations
if any, immediately, certainly within the same trading day.
In addition to the internal control mechanisms, the concurrent auditors should specifically verify
compliance with these instructions, as well as with internal guidelines and report violations, if
any, within a reasonably short time, to the appropriate internal authority. As part of their monthly
reporting, concurrent auditors may verify whether the independent back/mid office has taken
cognizance of lapses, if any, and whether they have reported the same within the required time
frame to the appropriate internal authority. Any violation of regulatory guidelines noticed in this
regard should immediately be reported to the respective PDO where the SGL account is
maintained and IDMD, Reserve Bank of India, Mumbai.
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Annex I-B Para 1.1 i) (a)
When Issued Market - Guidelines
Definition
‘When, as and if issued’ (commonly known as ‘when-issued’ (WI)) security refers to a security
that has been authorized for issuance but not yet actually issued. ‘WI’ trading takes place
between the time a new issue is announced and the time it is actually issued. All 'when issued'
transactions are on an 'if' basis, to be settled if and when the actual security is issued.
Mechanics of Operation
Transactions in a security on a ‘WI’ basis shall be undertaken in the following manner:
a) ‘WI’ transactions can be undertaken in the case of securities that are being reissued
as well as newly issued, on a selective basis.
b) ‘WI’ transactions would commence on the issue notification date and it would cease
on the working day immediately preceding the date of issue.
c) All ‘WI’ transactions for all trade dates will be contracted for settlement on the date
of issue.
d) At the time of settlement on the date of issue, trades in the ‘WI’ security will be
netted off with trades in the existing security, in the case of reissued securities.
e) The originating transactions (sale or purchase of 'WI' securities) shall be undertaken
only on NDS-OM. Any reversal of a 'WI’ transaction can, however, be undertaken on or
outside the NDS-OM platform.
f) Only PDs can take a short position in the ‘WI’ market. In other words, non-PDentities
can sell the ‘WI’ security to any counterparty only if they have a preceding purchase
contract for equivalent or higher amount.
g) Open Positions in the ‘WI’ market are subject to the following limits:
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Category Reissued security Newly issued security
Non-PDs
Long Position,
not exceeding 5 per cent of the
notified amount.
Long Position,
not exceeding 5 per cent of the
notified amount.
PD
Long or Short Position,
not exceeding 10 per cent of the
notified amount
Short Position, not exceeding 6
per cent and
Long Position, not exceeding 10
per cent of the notified amount.
h) In the event of cancellation of the auction for whatever reason, all ‘WI’ trades will be deemed null and void ab initio on grounds of force majeure.
Internal Control
All banks participating in the ‘WI’ market are required to have in place a written policy on ‘WI’
trading which should be approved by the Board of Directors. The policy should lay down the
internal guidelines which should include, inter alia, risk limits on ‘WI’ position (including, in the
case of reissued securities, overall position in the security, i.e., ‘WI’ plus the existing security),
an aggregate nominal limit (in terms of Face Value) for ‘WI’ and in the case of reissued
securities, ‘WI’ plus the existing security, the internal control arrangements to ensure adherence
to regulatory and internal guidelines, reporting of ‘WI’ activity to the top management, procedure
to deal with violations, etc. A system should be in place to detect violations immediately,
certainly within the trading day.
The concurrent auditors should specifically verify compliance with these instructions and report
violations on the date of trade itself, within a reasonably short time, to the appropriate internal
authority. As part of their monthly reporting, concurrent auditors may verify whether the
independent back/mid office has taken cognizance of all such lapses and reported the same
within the required time frame. Any violation of regulatory guidelines noticed in this regard
should immediately be reported to the PDO, Mumbai and IDMD, Reserve Bank of India.
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Annex I-C Para 1.1 i) (b)
Investment portfolio of banks – Transactions in securities –Conditions subject to which securities allotted in the auctions for primary issues can be sold
(i) The contract for sale can be entered into only once by the allottee bank on the basis of
an authenticated allotment advice issued by the Reserve Bank. The buyer from an allottee in a
primary auction is also permitted to re-sell the security subject to compliance with the terms and
conditions stipulated in our circular No.RBI/2005-06/ 73 IDMD.PDRS.337/10.02.01/2005-06
dated July 20, 2005 and IDMD.PDRS.05/10.02.01/2003-04 dated March 29, 2004. Any sale of
securities should be only on a T + 0 or T + 1 settlement basis.
(ii) The contract for sale of allotted securities can be entered into by banks with entities
maintaining SGL Account with the Reserve Bank as well as with and between CSGL account
holders for delivery and settlement on the next working day through the Delivery versus
Payment (DvP) system.
(iii) The face value of securities sold should not exceed the face value of securities indicated in
the allotment advice.
(iv) Services of brokers can be availed for carrying out sale of securities allotted in primary
issues on the same day.
(v) Separate record of such sale deals should be maintained containing details such as number
and date of allotment advice, description and the face value of securities allotted, the purchase
consideration, the number, date of delivery and face value of securities sold, sale consideration,
the date and details of actual delivery i.e. SGL Form No., etc. This record should be made
available to the Reserve Bank for verification. Banks should immediately report any cases of
failure to maintain such records.
(vi) Such type of sale transactions of Government Securities allotted in the auctions for primary
issues on the same day and based on authenticated allotment advice should be subjected to
concurrent audit and the relative audit report should be placed before the Executive Director or
the Chairman and Managing Director of the Bank once every month. A copy thereof should also
be sent to DBS, RBI, Central Office, Mumbai.
(vii) Banks will be solely responsible for any failure of the contracts due to the securities not
being credited to their SGL account on account of non-payment / bouncing of cheque, etc.
(viii) Banks can repo G-Sec (on T+0 basis) that have already been contracted for sale (on T+1
basis). Banks, while undertaking such transactions, shall ensure that adequate balances are
available in their SGL / CSGL accounts to ensure settlement of the transactions on the date of
settlement.
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Annex I – D
Para 1.1.1
Guidelines on Stripping/Reconstitution of Government Securities
Stripping is a process of converting periodic coupon payments of an existing Government
Security into tradable zero-coupon securities, which will usually trade in the market at a discount
and are redeemed at face value. Thus, stripping a five-year security would yield 10 coupon
securities (representing the coupons), maturing on the respective coupon dates and one
principal security representing the principal amount, maturing on the redemption date of the five-
year security. Reconstitution is the reverse of stripping, where, the Coupon STRIPS and
Principal STRIPS are reassembled into the original Government Security.
2. In terms of Explanation to section 11(2) of the Government Securities Act 2006, “A
Government security may be stripped separately for interest and principal or reconstituted on
the application of the holder subject to such terms and conditions as may be specified”.
Accordingly, the terms and conditions for stripping and/or reconstitution of Securities issued by
the Government of India have been notified by the Reserve Bankvide Notification
IDMD.1762/2009-10 dated October 16, 2009 (Annex I–D-1)
Process of Stripping/Reconstitution
3. Stripping/Reconstitution will be carried out at RBI as an automated process within the
Negotiated Dealing System (NDS). The process of stripping/reconstitution will be a straight-
through process without any manual intervention. Requests for stripping/reconstitution will be
generated and approved by market participants on the NDS and the same will, thereafter, flow
to a PD of their choice for authorization. After authorization by the PD, such requests would be
received and processed by the system (PDO-NDS) and necessary accounting entries posted in
the accounts of the requesting participant for the STRIPScreated/securities reconstituted. The
NDS will carry out the necessary validation checks like eligibility of securities, balances
available, etc., on the requests for stripping/reconstitution made by participants. However,
participants are required to ensure that sufficient balances are available in their accounts before
putting through requests for stripping/reconstitution.
4. Normally, ISIN for Government Securities are assigned at the time of auction of the
securities. However, in the case of STRIPS, as these securities are created at the request of the
participant, ISIN as well as nomenclature for STRIPS are created automatically based on a
predefined algorithm (see Annex I–D-2).
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56 Prudential Norms on Investments – 2014
5. Individual STRIPS (Coupon as well as Principal) will have a face value of Rs.100. Eligibility
6. Any entity, including individuals, holding balances of Government Securities that are eligible
for stripping/reconstitution (as notified by RBI from time to time) can strip/reconstitute these
securities. However, a participant (non-PD) desirous of stripping/reconstituting his balance of
eligible Government Securities/STRIPS should generate a request on the NDS for
stripping/reconstitution by choosing any one of the Primary Dealers. Such requests for
stripping/reconstitution by non-PD members shall be authorized by the PD and thereafter flow to
the NDS for appropriate action (stripping/reconstitution). Requests for stripping/reconstitution by
GAH shall be placed by the GAH with their respective custodians, who, in turn, will place the
requests, on behalf of its constituents, in the NDS. Since stripping/reconstitution is permitted
only in respect of securities held in electronic form, any participant desirous of
stripping/reconstituting Government Securities should have a SGL Account with the Reserve
Bankor a Gilt Account with a custodian maintaining a CSGL Account with the Reserve Bank. In
the case of Primary Dealers, they can place requests directly in the NDS for
stripping/reconstitution and need not route the same through another PD.
7. Initially, all PDs would be eligible to authorize stripping/reconstitution requests. However,
Reserve Bank, at its discretion, can exclude any PD from authorizing such requests. Market
participants will have the flexibility to choose a PD of their choice while submitting requests for
stripping/reconstitution. PDs will act as market makers in STRIPS and provide two-way quote in
the market.
Timings
8. Requests for stripping can be submitted by participants between 9.00 am and 2.00 pm only.
All requests for stripping, received by the system (PDO-NDS), will be processed at 2.00 pm and
necessary book entries will be passed in the SGL account of the participants to credit the due
amount of STRIPS (coupon as well as principal) on account of stripping. All requests that have
not been authorized by 2.00 pm will be rejected by the system. Stripping requests cannot be
approved/ authorized after 2.00 pm on any business/working day.
9. Similarly, requests for reconstitution can be submitted between 9.00 am and 2.00 pm only.
However, the requests for reconstitution would be processed online i.e., as and when such
requests are authorized by the PD, and the necessary accounting entries would be passed in
the SGL account of the requesting participant immediately subject to availability of sufficient and
necessary balances. As indicated at paragraph 8 above, requests for reconstitution that are not
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57 Prudential Norms on Investments – 2014
authorized by 2.00 pm will be rejected by the system. No reconstitution request can be
approved/authorized after 2.00 pm on any business/working day. Since reconstitution requests
are processed online, such requests, whenever routed through a PD, must be authorized by the
PD within 15 minutes of the receipt of the system notification (authorization request).
Eligible Securities
10. The Reserve Bank will notify, from time to time, the securities that are eligible for
stripping/reconstitution. To begin with, securities issued by Government of India, other than
floating rate bonds, with coupon dates as 2nd January and 2nd July, will be eligible for
stripping/reconstitution. Thus, all outstanding securities issued by Government of India, except
floating rate bonds, with coupon dates/maturity date as 2nd January and 2nd July, irrespective of
the year of maturity, will be eligible for stripping/reconstitution.
Minimum amount for stripping/reconstitution
11. The minimum amount of securities that needs to be submitted for Stripping/Reconstitution
will be Rs.1 crore (face value) and in multiples thereof.
Accounting and Valuation
12. STRIPS, being zero coupon securities, trade at a discount and are redeemed at face value.
Thus, STRIPS will have to be valued and accounted for as zero coupon bonds and in the
manner prescribed in in this Master Circular.
13. The discount rates used for valuation of STRIPS at inception should be market-based.
However, in case traded zero-coupon rates are not available, the zero coupon yields published
by FIMMDA should be used instead.
14. Accounting entries in the SGL accounts as a consequence of stripping/reconstitution, will be
passed at the face value. Thus, when a participant places a request for stripping, his SGL
account will be debited by the face value of the Government Security submitted for this purpose,
and will be simultaneously credited with the aggregate face value of Coupon STRIPS (equal to
the aggregate coupon amounts) as well as the face value of Principal STRIPS (equal to the face
value of the government security). An illustration is given in Annex I–D-3.
15.1 However, on the day of stripping, the STRIPS should be recognised in the books of
account of the participant at their discounted value and at the same time, the Government
Security in question should be derecognised. The accounting treatment for reconstitution should
be exactly the opposite of stripping. The detailed procedure for accounting of STRIPS is given
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58 Prudential Norms on Investments – 2014
below.
15.2 The stripping/reconstitution, per se, should not result in any profit or loss. As the present
value of the STRIPS (coupon as well as principal) discounted using the Zero Coupon Yield
Curve (ZCYC will not be equal to the book value/market value of the security, the value of
STRIPS shall be normalized using a factor that will be the ratio of the book value or market
value of the security (whichever is lower) to the sum total of the market value of all STRIPS
created out of the security (illustration given in Annex –I-D-4). This will ensure that the sum total
of the market value of STRIPS equals the book value/market value of the security, whichever is
lower.
15.3 Banks can strip eligible Government Securities held under the AFS/HFT category of their
investment portfolio. However, if strips are to be created out of securities held in the HTM
category, then the security first needs to be transferred to AFS/HFT category. The shifting of
securities from HTM category for the purpose of stripping, will be as per the relevant guidelines
prescribed by DBOD on prudential norms for classification, valuation and operation of
investment portfolio by banks.
15.4 In case STRIPS are created from securities held in the HTM portfolio, the securities
should be transferred from the HTM category to the AFS/HFT category (as per the shifting
discipline from HTM) and the shifted security shall be carried at the least of the book
value/market value. Depreciation, if any, shall be provided for and appreciation, if any, ignored
as hitherto. Thereafter, the lower of the book value/market value will be used for normalizing the
market value of individual STRIPS to the book value/market value. Post- stripping, the book
value/market value of the existing securities will be derecognized and replaced by the
normalized value of STRIPS whose sum total shall exactly equal the book value/market value of
the extinguished security (thereby ensuring that there is no profit or loss on account of
stripping). Any appreciation, arising due to the shifting of the security from HTM shall be
ignored. The same methodology would follow for securities that are stripped from the AFS/HFT
portfolio.
15.5 (i) Before a security is stripped, it must be marked to market. Appreciation, if any, should
be ignored and depreciation, if any, must be recognised if the market value is lower than
the book value. Such depreciation cannot be aggregated for the purpose of arriving at
net depreciation/appreciation of investment under the AFS/HFT category. The book
value/market value of the security, whichever is lower, must be used to normalise the
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59 Prudential Norms on Investments – 2014
STRIPS.
(ii) The Normalisation principle, on stripping/reconstitution will be applied on the clean
price of the security (without considering the accrued interest) as the accrued interest is
booked as income/expenditure.
(iii) Normalisation should also be applied in the case of reconstitution (even when
STRIPS are acquired from the market).
(iv) The book value of the STRIPS (ZCBs) should be valued and marked to market as
per extant DBOD guidelines. Accordingly, the book value of the STRIPS shall be marked
up to the extent of accrued interest before MTM. In other words, once a security has
been acquired, it will attract the treatment accorded to any other zero coupon security.
SLR Status of STRIPS
16. STRIPS will be reckoned as eligible Government Securities for SLR purposes and retain all
the characteristics of Government Security. They will be eligible securities for market repo as
well as repo under LAF of RBI but with appropriate haircut.
Trading in STRIPS
17. To begin with, STRIPS will be tradable only in the OTC market. Hence, trades in STRIPS
will have to be undertaken in the OTC market and reported on NDS for clearing and settlement
through CCIL.
18. Short sale of STRIPS shall not be permitted.
19. Participants shall not sell STRIPS/securities upfront based on the requests placed by them
for stripping/reconstitution. Accordingly, sale transaction in STRIPS/securities shall
beundertaken by participants only after the securities are stripped/reconstituted and the same is
reflected in the SGL account of the participant.
Fees & Charges
20. Reserve Bank will not charge any fees for stripping/reconstitution of Government Securities.
Further, to begin with, PDs, who are the “authorized entities” for authorizing requests for
stripping/reconstitution in the PDO-NDS may also not charge the participants for carrying out
this activity.
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60 Prudential Norms on Investments – 2014
Annex I–D-1
I. Definitions
a) “STRIPS” (Separate Trading of Registered Interest and Principal of Securities) are
distinct, separate securities that are created from the cash flows of a Government
security and shall consist of –
(i) Coupon STRIPS, where the single cash flow of the STRIPS represents a
coupon flow of the original security
(ii) Principal STRIPS, where the single cash flow of the STRIPS represents
the principal cash flow of the original security.
Explanation: Stripping of a security shall result in Coupon STRIPS for all
outstanding coupon payments and one Principal STRIPS for the redemption
payment. Each STRIPS accordingly becomes a ZCB since it has only one cash
flow at maturity. Each STRIPS shall be a distinct Government Security and shall
have a separate and distinct International Securities Identification Number (ISIN).
b) ”Stripping” means the process of separating the cash flows associated with a
regular Government Security i.e., each outstanding semi-annual coupon payment
and the final principal payment into separate securities.
c) “Reconstitution” means the reverse process of stripping, where the individual
STRIPS i.e., both coupon STRIPS and Principal STRIPS are reassembled to get
back the original security.
d) “Authorized entity” means a PD or any other entity recognized by the Reserve Bank
to accept requests from the holders of Government Securities for
stripping/reconstitution of the securities and submission to the Reserve Bank.
II. Terms and Conditions for STRIPS
1. The process of stripping/reconstitution of Government Securities shall be carried out
at RBI, PDO in the PDO-NDS (Negotiated Dealing System).
2. All dated Government Securities other than floating rate bonds having coupon
payment dates on 2nd January and 2nd July, irrespective of the year of maturity
shall be eligible for Stripping/Reconstitution.
3. All Coupon STRIPS with the same maturity date shall have the same ISIN,
regardless of the underlying security from which the interest payments were
stripped, and coupon STRIPS of the same cash flow shall be fungible
(interchangeable). The ISIN of Coupon STRIPS shall be different from the ISIN of
Principal STRIPS, even if they have the same maturity date, and shall not be
fungible.
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61 Prudential Norms on Investments – 2014
4. Stripping/reconstitution may be done at the option of the holder at any time from
the date of issuance of a Government Security till its maturity.
5. Stripping/reconstitution shall be permitted only in the eligible Government
Securities held in the Subsidiary General Ledger (SGL)/Constituent Subsidiary
General Ledger (CSGL) accounts maintained at the PDO, RBI, Mumbai. Physical
securities shall not be eligible for stripping/reconstitution.
6. Holders of Government Securities shall place their requests for
stripping/reconstitution only with an “Authorized entity”.
7. Reserve Bank will not charge any fees on stripping/reconstitution.
8. The amount of securities that could be tendered for stripping/reconstitution shall
be a minimum of Rs.1 crore and in multiples thereof.
9. These terms and conditions shall come into effect from the date of this Notification.
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62 Prudential Norms on Investments - 2014
Annex I–D-2
ISIN for STRIPS
Structure:
I N M M Y Y
Country code
Issuer
type/state
code
Month and year of maturity of the STRIP
Security type
Subsequent
strips/series
serial number
Checksum digit
Example of a CG Principal STRIP maturing in March 2011:
I N 0 0 0 3 1 1 P 0 1
Country code
Issuer
type/state
code
Month and year of maturity of the STRIP
Security type
Subsequent
strips/series
serial number
Checksum digit
Example of a CG Coupon STRIP maturing in March 2011:
I N 0 0 0 3 1 1 C 0 1
Country
code
Issuer
type/state
code
Month and year of
maturity of the STRIP
Security
type
Subsequent
strips/series
serial number
Checksum
digit
Nomenclature for Coupon STRIPS
GSDDMONYYYYC; where GS=Government Security, DDMONYYYY=date of maturity of the STRIPS and C=Coupon STRIP. (Ex. A coupon STRIP maturing on March 25, 2011 would be written as GS25MAR2011C)
Nomenclature for Principal STRIPS
x.xx%GSDDMONYYYYP; where x.xx is the coupon of the parent security from which the principal STRIP has been generated, GS=Government Security, DDMONYYYY=date of maturity of the STRIPS and P=Principal STRIPS. (Ex. A principal STRIP generated from, say, 7.99%2019 maturing on 02 July 2019 will be written as 7.99%GS02JUL2019P)
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63Prudential Norms on Investments - 2014
Annex I–D-3
Stripping of securities – An illustration
Strippable Securities
Security Date of Maturity
9.39% 2011 02-Jul-11
12.30 % 2016 02-Jul-16
Investor "A" Portfolio as on October 16, 2009 (in the books of PDO, Mumbai) 9.39
Security
Rs. (Cr)
{Face Value} 50,000,000
9.39% 2011 100.00 1,000,000,000
12.30 % 2016 250.00 2,500,000,000
On March 17, 2010, investor "A" strips Rs.5 Cr worth of 9.39%2011 & Rs.10 Cr worth of 12.30%2016 12.3
100,000,000
STRIPS generated
02 July 10 2,347,500 02 July 10 6,150,000
02 Jan 11 2,347,500 02 Jan 11 6,150,000
02 July 11 2,347,500 02 July 11 6,150,000
Principal STRIP
(PS) 02 July 11 50,000,000 02 Jan 12 6,150,000
# Each coupon strip = {9.39%/2} x 5 Cr. 02 July 12 6,150,000
02 Jan 13 6,150,000
02 July 13 6,150,000
02 Jan 14 6,150,000
02 July 14 6,150,000
02 Jan 15 6,150,000
02 July 15 6,150,000
02 Jan 16 6,150,000
02 July 16 6,150,000Principal
STRIP
(PS) 02 July 16 100,000,000
# Each coupon strip = {12.30%/2} x 10 Cr.
Portfolio as on March 17, 2010 after stripping (in the books of PDO, Mumbai)
SecurityAmount (Rs.)
{Face Value}9.39% 2011 950,000,000
12.30 % 2016 2,400,000,000
CS 02 July 10 8,497,500
CS 02 Jan 11 8,497,500
CS 02 July 11 8,497,500
CS 02 Jan 12 6,150,000
CS 02 July 12 6,150,000
CS 02 Jan 13 6,150,000
CS 02 July 13 6,150,000
CS 02 Jan 14 6,150,000
CS 02 July 14 6,150,000
CS 02 Jan 15 6,150,000
CS 02 July 15 6,150,000
CS 02 Jan 16 6,150,000
CS 02 July 16 6,150,000
PS 02 July 11 50,000,000
PS 02 July 16 100,000,000
# CS=Coupon STRIPS; PS=Principal STRIP
9.39% 2011 12.30 % 2016
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64 Prudential Norms on Investments - 2014
Annex I–D-4
(For illustration only)
12.30% 2016
02-Jul-16
12.30%
03-Mar-10
129.96
(2) Book Value 120.00
(3) Sum total of PV of STRIPS 127.87
(4) Normalization Factor [(2) ÷ (3)] 0.9385
Maturity
Date
Maturity
amountZCYC
PV of
STRIPS
(Market
Value)
Normalized value
of STRIPS
(a) (b) (c) (d) [0.9385 x (d)]
1 2/Jul/10 6.15 4.0683 6.0274 5.6564
2 2/Jan/11 6.15 4.6948 5.8711 5.5098
3 2/Jul/11 6.15 5.3212 5.6841 5.3343
4 2/Jan/12 6.15 5.6128 5.5055 5.1666
5 2/Jul/12 6.15 5.9044 5.3174 4.9901
6 2/Jan/13 6.15 6.1339 5.1305 4.8147
7 2/Jul/13 6.15 6.3633 4.9392 4.6352
8 2/Jan/14 6.15 6.4744 4.7663 4.4730
9 2/Jul/14 6.15 6.5855 4.5946 4.3118
10 2/Jan/15 6.15 6.7227 4.4187 4.1467
11 2/Jul/15 6.15 6.8599 4.2439 3.9827
12 2/Jan/16 6.15 6.9971 4.0707 3.8201
13 2/Jul/16 106.15 7.1343 67.3029 63.1606
127.87 120.00
Note:
(1) Market value of 12.30% on 03-Mar-10
TOTAL
1. The security is presumed to be held in HTM category and hence is to be shifted to AFS/HFT before stripping,
marked-to-market and the lower of the book value or market value will be used to arrive at the normalization
factor.2. In case the market value of 12.30% 2016 is less than the book value then the market value, instead of the book
value, will be used to normalize the STRIPS, i.e., the normalization factor would be market value ÷ sum total of
PV of STRIPS ; where the PV of STRIPS are arrived at by discounting the cash flow using the ZCYC.
3. Securities in AFS/HFT will be normalized using the same principle (i.e., lower of market value/book value).
Procedure for normalization of STRIPS (at stripping/reconstitution) to ensure no profit/loss
Security
Date of maturity
Coupon
Date of Stripping
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65 Prudential Norms on Investments - 2014
Annex I – E Para 1.2.23
Repo in Corporate Debt Securities (Reserve Bank) Directions, 2010
1. Short title and commencement of the directions
These directions are called the Repo in Corporate Debt Securities (Reserve Bank) Directions, 2010 effective from March 01, 2010.
2. Definitions
a. ‘Corporate Debt Security’ means non-convertible debt securities, which create or
acknowledge indebtedness, including debentures, bonds and such other securities of a company or a body corporate constituted by or under a Central or State Act, whether constituting a charge on the assets of the company or body corporate or not, but does not include debt securities issued by Government or such other persons as may be specified by the Reserve Bank, security receipts and securitized debt instruments”
b. ‘Security Receipts’ means a security as defined in clause (zg) of section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002)
c. ‘Securitized debt instrument’ means securities of the nature referred to in sub-clause (ie) of clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956(42 of 1956).
3. Eligible securities for repo in Corporate Debt Securities
a. Only listed corporate debt securities which are rated ‘AA’ or above by the ratingagencies, that are held in the security account of the repo seller, in demat form, shall be eligible for undertaking repo. Repo shall also be permitted on Commercial Papers, Certificates of Deposit and Non-Convertible Debentures of less than one year of original maturity with equivalent minimum rating of AA and above.
4. Eligible Participants
The following entities shall be eligible to undertake repo transactions in corporate debt securities:
a. Any SCB excluding RRBs and LABs;
b. Any Primary Dealer authorised by the Reserve Bank;
c. Any non-banking financial company registered with the Reserve Bank (other than Government companies as defined in section 617 of the Companies Act, 1956);
d. All-India Financial Institutions, namely, Exim Bank, NABARD, NHB and SIDBI;
e. Scheduled Urban Cooperative Banks
f. Other regulated entities, subject to the approval of the regulators concerned, viz.,
i. Any mutual fund registered with the Securities and Exchange Board of India;
ii. Any housing finance company registered with the National Housing Bank; and
iii. Any insurance company registered with the Insurance Regulatory and Development Authority
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66 Prudential Norms on Investments - 2014
g. India Infrastructure Finance Company Limited (IIFCL)
h. Any other entity specifically permitted by the Reserve Bank
5. Tenor
Repos in corporate debt securities shall be for a minimum period of one day and a maximum period of one year.
6. Trading
Participants shall enter into repo transactions in corporate debt securities in the OTC market.
7. Reporting of Trades
Banks shall report their OTC transactions in repo in corporate debt securities within 15 minutes
of the trade on F-TRAC platform managed by Clearcorp Dealing System (India) Ltd. (CDSIL), a
wholly owned subsidiary of CCIL.
8. Settlement of trades
a. All repo trades in corporate debt securities are permitted to be settled on a T+0, T+1 or T+2 basis under DvP - I (gross basis) framework.
b. Repo transactions in corporate debt securities shall settle in the same manner as
outright OTC trades in corporate debt securities. c. On the date of reversal of repo trades, the clearing houses shall compute the
obligations of the parties and facilitate settlement on DvP basis. d. These trades may be cleared and settled through any of the clearing
corporations (NSCCL, ICCL and MCX-SX CCL).
9. Prohibition on sale of repoed security
The security acquired under repo shall not be sold by the repo buyer (lender of the funds) during the period of repo.
10. Haircut
The repo trades in corporate debt securities are permitted to be settled on T+0 basis in addition to the existing T+1 and T+2 basis under DvP I (gross basis) framework. The minimum haircut,
applicable on the market value of the corporate debt securities prevailing on the date of trade of 1st leg, which was earlier stipulated as 25 per cent, has been revised as under:
Rating AAA AA+ AA
Minimum haircut* 7.5% 8.5% 10%
* The above haircuts are minimum stipulated haircuts where the repo period is overnight or where the remaining frequency (in case of longer tenor repos) is daily. In all other cases, the participants may adopt appropriate higher haircuts.
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11. Valuation
For arriving at the market value of the corporate debt security, the participants undertaking repo in corporate bonds may refer to the credit spreads published by the FIMMDA.
12. Capital Adequacy
The repo transactions in corporate debt securities shall attract capital charge in terms of para 7.3.8 of the Master Circular DBOD.No.BP.BC.2/21.06.201/2013-14 on ‘Basel III Capital Regulations’ dated July 1, 2013.
13. Disclosure
The details of corporate debt securities lent or acquired under repo or reverse repo transactions shall be disclosed in the “Notes on Accounts” to the Balance Sheet.
14. Accounting
The repo transactions in corporate debt securities shall be accounted as per the revised guidelines on uniform accounting for repo/reverse repo transactions in Government securities.
15. Computation of CRR/SLR & borrowing limit
a. The amount borrowed by a bank through repo shall be reckoned as part of its Demand and Time Liabilities (DTL) and the same shall attract CRR/SLR as per the provisions of the Master Circular on Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR).
b. The borrowings of a bank through repo in corporate bonds shall be reckoned as
its liabilities for reserve requirement and, to the extent these liabilities are to the banking system, they shall be netted as per clause (d) of the explanation under section 42(1) of the RBI Act, 1934. Such borrowings shall, however, be subject to the prudential limits for inter-bank liabilities prescribed vide circular DBOD.BP.BC.66/21 .01.002/2006-07 dated March 06, 2007.
16. Documentation The participants shall enter into bilateral Master Repo Agreement as per the documentation finalized by the FIMMDA.
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68 Prudential Norms on Investments - 2014
Annex II
Para 1.1.7 (i) (g)
Investment portfolio of banks - Transactions in securities - Aggregate contract limit for individual brokers
Sl. No.
Issue Raised Response
1. The year should be calendar year or financial year?
Since banks close their accounts at the end of March, it may be more convenient to follow the financial year. However, the banks may follow calendar year or any other period of 12 months provided, it is consistently, followed in future.
2. Whether the limit is to be observed with reference to total transactions of the previous year as the total transactions of the current year should be known only at the end of the year?
The limit has to be observed with reference to the year under review. While operating the limit, the bank should keep in view the expected turnover of the current year which may be based on turnover of the previous year and anticipated rise or fall in the volume of business in the current year.
3. Whether to arrive at the total transactions of the year, transactions entered into directly with counter-parties i.e. where no brokers are involved would also be taken into account
Not necessary. However, if there are any direct deals with the brokers as purchasers or sellers the same would have to be included in the total transactions to arrive at the limit of transactions to be done through an individual broker.
4. Whether in case of Ready Forward (R/F) deals both the legs of the deals i.e. purchase as well as sale will be included to arrive at the volume of total transactions?
Yes. This is however only theoretical as R/F transactions in Govt. Security is now prohibited except in Treasury Bills and the 3 year dated securities issued by conversion of Treasury Bills recently.
5. Whether central loan /state loan /treasury bills etc. purchased subscriptions/ auction will be, included in the volume of total transactions?
No, as brokers are not involved as intermediaries.
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6. It is possible that even though bank considers that a particular broker has touched the prescribed limit of 5% he may come with an offer during the remaining period of the year which the bank may find it to its advantage as compared to offers received from the other brokers who have not yet done business upto the prescribed limit.
If the offer received is more advantageous the limit for the broker may be exceeded the reasons therefor recorded and approval of the competent authority / Board obtained post facto.
7. Whether the transactions conducted on behalf of the clients would also be included in the total transactions of the year?
Yes. If they are conducted through the brokers.
8. For a bank which rarely deals through brokers and consequently the volume of business is small maintaining the broker- wise limit of 5% may mean splitting the orders in small values amongst different brokers and there may also arise price differential.
There may be no need to split an order. If any deal causes the particular broker's share to exceed 5% limit, our circular provides the necessary flexibility in as much as Board's post facto approval can be obtained.
9. During the course of the year it may not be possible to reasonably predict what will be the total quantum of transactions through brokers as a result of which there could be deviation in complying with the norm of 5% .
The bank may get post facto approval fromthe Boardafterexplainingtoitthecircumstancesunderwhichthelimitwasexceeded.
10. Some of the small private sector banks have mentioned that where the volume of business particularly the transactions done through brokers is small the observance of 5% limit may be difficult. A suggestion has therefore been made that the limit may be required to be observed if the business done through a broker exceeds a cut-off point of say Rs.10 crores.
As already observed the limit of 5 per cent can be exceeded subject to reporting the transactions to the competent authority post facto. Hence, no change in our instructions is considered necessary.
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Annex –III Para 1.2.4
Guidelines on Investments by Banks in Non-SLR Investment Portfolio by Banks -
Definitions
1. With a view to imparting clarity and to ensure that there is no divergence in
theimplementation of the guidelines, some of the terms used in the guidelines on non-SLR
investments are defined below.
2. A security will be treated as rated if it is subjected to a detailed rating exercise by
anexternal rating agency in India, which is registered with SEBI and is carrying a current or
valid rating. The rating relied upon will be deemed to be current or valid if:
i) The credit rating letter relied upon is not more than one month old on the date of opening of the issue, and
ii) The rating rationale from the rating agency is not more than one year old on the date of opening of the issue, and
iii) The rating letter and the rating rationale is a part of the offer document.
iv) In the case of secondary market acquisition, the credit rating of the issue should be in force and confirmed from the monthly bulletin published by the respective rating agency.
Securities, which do not have a current or valid rating by an external rating agency, would
be deemed as unrated securities.
3. The investment grade ratings awarded by each of the external rating agencies operating
in India would be identified by the IBA / FIMMDA. These would also be reviewed by IBA /
FIMMDA at least once a year.
4. A 'listed' security is a security which is listed in a stock exchange. Investment in non-SLR
debt securities (both primary and secondary market) by banks where the security is
proposed to be listed on the Exchange(s) may be considered as investment in listed
security at the time of making investment.
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Annex-IV Para 1.2.21
Prudential Guidelines on Management of the Non-SLR Investment Portfolio by Banks - Disclosures Requirements
Banks should make the following disclosures in the 'Notes on Accounts' of the balance sheet in respect of their non-SLR investment portfolio, with effect from the financial year ending 31 March 2004.
(i) Issuer composition of Non SLR investments
(Rs. in crore)
Sl. No
Issuer
Amount Extent of private placement
Extent of 'below investment grade' securities
Extent of 'unrated' securities
Extent of 'unlisted' securities
1 2 3 4 5 6 7
1. PSUs
2. FIs
3. Banks
4. Private Corporates
5. Subsidiaries / Joint ventures
6. Others
7. Provision held towards depreciation
XXX XXX XXX XXX
Total *
Note: 1. * Total under column 3 should tally with the total of investments included under the
following categories in Schedule 8 to the balance sheet:
(a) Shares (b) Debentures&Bonds(c) Subsidiaries/jointventures
(d) Others
2. Amounts reported under columns 4, 5, 6 and 7 above may not be mutually exclusive.
(ii) Non-performing Non-SLR investments
Particulars Amount (Rs. Crore)
Opening balance
Additions during the year since 1st April
Reductions during the above period
Closing balance
Total provisions held
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Annex V
Para 1.3.1
RETURN/STATEMENT No. 9
Proforma Statement showing the position of Reconciliation of Investment Account as on 31st March
Name of the bank/ Institution:
Face value Rs. in crore
Particulars of securities
General Ledger Balance
SGL Balance
BRs held
SGL Forms held
Actual Scrips Held
Outstanding deliveries
As per PDO Books
As per bank’s / institution’s books
1 2 3 4 5 6 7 8
Central Govt
State Government
Other approved securities
Public Sector Bonds
Units of UTI (1964)
Others (Shares & Debenture etc)
TOTAL
Signature of the Authorised Official with the Name and Designation
Note : Similar statements may be furnished in respect of PMS client’s Accounts and other constituents’ Accounts (including Brokers). In the case of PMS/other constituents’ accounts, the face value and book value of securities appearing in the relevant registers of the bank should be mentioned under Column 2.
.
General instructions for compiling reconciliation statement
a) Column - 2 (GL balances)
It is not necessary to give complete details of securities in the format. Only aggregate amount of face value against each category may be mentioned. The corresponding book value of securities may be indicated in bracket under the amount of face value of securities under each category.
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b) Column - 3 and 4 (SGL balances)
In the normal course balances indicated against column three and four should agree with each other. In case of any difference on account of any transaction not being recorded either in PDO or in the books of the bank this should be explained giving full details of each transaction.
c) Column - 5 (BRs held)
If the bank is holding any BRs for purchases for more than 30 days from the date of its issue, particulars of such BRs should be given in a separate statement.
d) Column - 6 (SGL forms held)
Aggregate amount of SGL forms received for purchases, which have not been tendered with PDO, should be given here.
e) Column - 7
Aggregate amount of all scrips held in the form of bonds, letters of allotments, subscription receipts as also certificates of entries in the books of accounts of the issuer (for other than government securities), etc. including securities which have been sold but physical delivery has not been given should be mentioned.
f) Column - 8 (outstanding deliveries)
This relates to BRs issued by the bank, where the physicals/scrips have not been delivered but the balance in General Ledger has been reduced. If any BR issued is outstanding for more than thirty days the particulars of such BRs may be given in a separate list indicating reasons for not affecting the delivery of scrips.
g) General
Face value of securities indicated against each item in column two should be accounted for under any one of the columns from four to seven. Similarly, amount of outstanding deliveries (BRs issued) which has been indicated in column eight will have to be accounted for under one of the columns four to seven. Thus the total of columns two and eight should tally with total of columns four to seven.
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74 Prudential Norms on Investments - 2014
Annex VI Para 4.8
Disclosures
The following disclosures should be made by banks in the ‘Notes on Accounts' to the Balance Sheet.
(Rs. in crore)
Minimum outstanding during the year
Maximum outstanding during the year
Daily Average outstanding during the year
As on March 31
Securities sold under repos
Securities purchased under reverse repos
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Annex VII-A Para 4.6
Recommended Accounting Methodology for accounting of Repo / Reverse Repo transactions
i The following accounts may be maintained , viz. i) Repo Account, ii) Reverse Repo Account, iii) Reverse Repo Interest Income Account, iv) Repo Interest Expenditure Account v) Reverse Repo Interest Receivable Account and vi) Repo Interest Payable Account.
ii In addition to the above, the following 'contra' accounts may also be maintained, viz. i) Securities Sold under Repo Account, (ii) Securities Purchased under Reverse Repo Account, (iii) Securities Receivable under Repo Account and (iv) Securities Deliverable under Reverse Repo Account.
Repo
iii In a repo transaction, the securities should be sold in the first leg at market related prices and re-purchased in the second leg at the same prices. The consideration amount in the second leg would, however, include the repo interest. The sale and repurchase should be reflected in the Repo Account.
iv Though the securities are not excluded from the repo seller's investment account and not included in the repo buyer's investment account, the transfer of securities shall be reflected by using the necessary contra entries.
Reverse Repo
v In a reverse repo transaction, the securities should be purchased in the first leg at prevailing market prices and sold in the second leg at the same prices. The consideration amount in the second leg would, however, include the repo interest. The purchase and sale should be reflected in the Reverse Repo Account.
vi The balances in the Reverse Repo Account shall not be a part of the Investment Account for balance sheet purposes but can be reckoned for SLR purposes if the securities acquired under reverse repo transactions are approved securities.
Other aspects relating to Repo/Reverse Repo
vii In case the interest payment date of the securities sold under repo falls within the repo period, the coupons received by the buyer of the security should be passed on to the seller on the date of receipt as the cash consideration payable by the seller in the second leg does not include any intervening cash flows.
viii To reflect the accrual of interest in respect of the outstanding repo transactions at the end of the accounting period, appropriate entries should be passed in the Profit and Loss account to reflect Repo Interest Income / Expenditure in the books of the buyer / seller respectively and the same should be debited / credited as an expenditure payable/income receivable. Such entries passed should be reversed on the first working day of the next accounting period.
ix Repo seller continues to accrue coupon/discount as the case may be, even during the repo period while the repo buyer shall not accrue the same.
x Illustrative examples are given in Annex – VIII-B
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Annex VII-B
Para 4.6
Illustrative examples for accounting of Repo / Reverse repo transactions
While in the body of the circular, the term "repo" is used generically to include both repo and reverse repo (which is simply a mirror image of a repo transaction), in this Annex the accounting guidelines have been set out separately for repo and reverse repo for clarity.
A. Repo/Reverse Repo of dated security
1. Details of Repo in a coupon bearing security:
Security offered under repo 6.35% 2020
Coupon payment dates 02 January and 02 July
Market Price of security Rs.90.9100 (1)
Date of the repo 28-Mar-2010
Repo interest rate 5.00%
Tenor of the repo 5 days
Reversal date for the repo 02-Apr-20 10
Broken period interest for the first leg* 6.35% x 86 / 360 x 100 = 1.5169 (2)
Cash consideration for the first leg (1) + (2) = 92.4269 (3)
Repo interest** 92.4269 x5/365x5.00%= 0.0633 (4)
Cash Consideration for the second leg (3)+(4) = 92.4269 + 0.0633 = 92.4902
* Using 30/360 day count convention ** Using Actual/365 day count convention
2. Accounting for Repo Seller (Borrower of Funds)
First leg
Debit Credit
Cash 92.4269
Repo A/c 92.4269
Securities Receivable under Repo A/c (by contra)
92.4269
Securities Sold under Repo A/c (by contra) 92.4269
Second Leg
Debit Credit
Repo A/c 92.4269
Repo Interest Expenditure A/c 0.0633
Cash A/c 92.4902
Securities Sold under Repo A/c (by contra) 92.4269
Securities Receivable under Repo A/c (by contra)
92.4269
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3. Accounting for Repo Buyer (Lender of Funds)First leg
Debit Credit
Reverse Repo A/c 92.4269
Cash A/c 92.4269
Securities Purchased under Reverse Repo A/c (by contra) 92.4269
Securities Deliverable under Reverse Repo A/c (by contra) 92.4269
Second Leg
Debit Credit
Cash A/c 92.4902
Reverse Repo A/c 92.4269
Reverse Repo Interest Income A/c 0.0633
Securities Deliverable under Reverse Repo A/c (by contra) 92.4269
Securities Purchased under Reverse Repo A/c (by contra) 92.4269
4. Ledger entries for the adjustment accounts Securities Receivable under Repo A/c
Debit Credit
To Securities Sold under Repo A/c (repo 1st leg)
92.4269 By Securities Sold under Repo A/c (repo 2nd leg)
92.4269
Securities Sold under Repo A/c Debit Credit
To Securities Receivable under Repo A/c (repo 2nd leg)
92.4269 By Securities Receivable under Repo A/c (repo 1st leg)
92.4269
Securities Purchased under Repo A/c Debit Credit
To Securities Deliverable under Reverse Repo A/c (reverse repo 1st leg)
92.4269 By Securities Deliverable under Reverse Repo A/c (reverse repo 2nd leg)
92.4269
Securities Deliverable under Repo A/c Debit Credit
To Securities Purchased under Reverse Repo A/c (reverse repo 2nd leg)
92.4269 By Securities Purchased under Reverse repo A/c (Reverse Repo 1st leg)
92.4269
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5. If the balance sheet date falls during the tenor of the repo, participants may use the transit accounts, i.e., Repo Interest Payable A/c and Reverse Repo Interest Receivable A/c to record the accrued interest and reverse the same the following day. The balances in the repo interest receivable and payable shall be taken to the P & L Account with appropriate entries passed in the Balance sheet, as below:-
Transaction Leg 1st leg Balance Sheet Date 2nd leg
Dates 28-Mar-10 31-Mar-10 02-Apr-10
a) Entries in the Books of Repo Seller (borrower of funds) on 31-Mar-10
Account Head Debit Credit
Repo Interest Expenditure A/c [Balances under the account to be transferred to P & L]
0.0506 (being the repo interest for 4 days)
Repo Interest Payable A/c 0.0506
Account Head Debit Credit
P & L A/c 0.0506
Repo Interest Expenditure A/c 0.0506
b) Reversal of entries in the Books of Repo Seller (borrower of funds) on 01-Apr-10
Account Head Debit Credit
Repo Interest Payable A/c 0.0506
Repo Interest Expenditure 0.0506
c) Entries in books of Repo Buyer (Lender of Funds)on 31-Mar-10
Account Head Debit Credit
Reverse Repo Interest Receivable A/c 0.0506
Reverse Repo Interest Income A/c [Balances under the account to be transferred to P & L]
0.0506 (Being the repo interest for 4 days)
Account Head Debit Credit
Reverse Repo Interest Income A/c 0.0506
P & L A/c 0.0506
d) Reversal of entries in the Books of Repo Buyer (Lender of Funds) on 01-Apr-10
Account Head Debit Credit
Reverse Repo Interest Income A/c 0.0506
Reverse Repo Interest Receivable A/c 0.0506
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B. Repo/ Reverse Repo of Treasury Bill
1. Details of Repo on a Treasury Bill
Security offered under Repo GOI 91 day Treasury Bill maturing on 07 May 2010
Price of the security offered under Repo Rs.99.0496 (1)
Date of the Repo 28-Mar-2010
Repo interest rate 5%
Tenor of the repo 5 days
Total cash consideration for the first leg 99.0496 (2)
Repo interest * 99.0496 X 5%X 5 /365 = 0.0678 (3)
Cash consideration for the second leg (2)+(3) = 99.0496 + 0.0678 = 99.1174 * Using Actual/365 day count convention
2. Accounting for Repo Seller (Borrower of Funds)First leg
Debit Credit
Cash 99.0496
Repo A/c 99.0496
Securities Receivable under Repo A/c (by contra) 99.0496
Securities Sold under Repo A/c (by contra) 99.0496
Second Leg
Debit Credit
Repo A/c 99.0496
Repo Interest Expenditure A/c 0.0678
Cash A/c 99.1174
Securities Sold under Repo A/c (by contra) 99.0496
Securities Receivable under Repo A/c (by contra) 99.0496
3. Accounting for Repo Buyer (Lender of Funds)First leg
Debit Credit
Reverse Repo A/c 99.0496
Cash A/c 99.0496
Securities Purchased under Reverse Repo A/c (by contra)
99.0496
Securities Deliverable under Reverse Repo A/c (by contra)
99.0496
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Second Leg
Debit Credit
Cash A/c 99.1174
Reverse Repo A/c 99.0496
Reverse Repo Interest Income A/c 0.0678
Securities Deliverable under Reverse Repo A/c (by contra)
99.0496
Securities Purchased under Reverse Repo A/c (by contra)
99.0496
4. Ledger entries for the adjustment accounts
Securities Receivable under Repo A/c
Debit Credit
To Securities Sold under Repo A/c (repo 1st leg)
99.0496 By Securities Sold under Repo A/c (repo 2nd leg)
99.0496
Securities Sold under Repo A/c Debit Credit
To Securities Receivable under Repo A/c (repo 2nd leg)
99.0496 By Securities Receivable under Repo A/c (repo 1st leg)
99.0496
Securities Purchased under Repo A/c Debit Credit
To Securities Deliverable under Reverse Repo A/c (reverse repo 1st leg)
99.0496 By Securities Deliverable under Reverse Repo A/c (reverse repo 2nd leg)
99.0496
Securities Deliverable under Repo A/c Debit Credit
To Securities Purchased under Reverse Repo A/c (reverse repo 2nd leg)
99.0496 By Securities Purchased under Reverse Repo A/c (reverse repo 1st leg)
99.0496
5. If the balance sheet date falls during the tenor of the repo, participants may use the transit accounts, i.e. Repo Interest Payable A/c and Reverse Repo Interest Receivable A/c to record the accrued interest and reverse the same the following day. The balances in the repo interest receivable and payable shall be taken to the P & L Account with appropriate entries passed in the Balance sheet, as below:-
Transaction Leg 1st leg Balance Sheet Date 2nd leg
Dates 28-Mar-10 31-Mar-1 0 02-Apr-10
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a) Entries in the Books of Repo Seller (borrower of funds) on 31-Mar-10
Account Head Debit Credit
Repo Interest Expenditure A/c [Balances under the account to be transferred to P & L]
0.0543 ( being the repo interest for 4 days)
Repo Interest payable A/c 0.0543
Account Head Debit Credit
P & L A/c 0.0543
Repo Interest Expenditure A/c 0.0543
b) Reversal of entries in the Books of Repo Seller (borrower of funds) on 01-Apr-10
Account Head Debit Credit
Repo Interest Payable A/c 0.0543
Repo Interest Expenditure 0.0543
c) Entries in books of Repo Buyer (Lender of Funds) on 31-Mar-10
Account Head Debit Credit
Reverse Repo Interest Receivable A/c
0.0543
Reverse Repo Interest Income A/c [Balances under the account to be transferred to P & L]
0.0543 (Being the repo interest for 4 days)
Account Head Debit Credit
Reverse Repo Interest Income A/c 0.0543
P & L A/c 0.0543
d) Reversal of entries in the Books of Repo Buyer (Lender of Funds) on 01-Apr-10
Account Head Debit Credit
Reverse Repo Interest Income A/c 0.0543
Reverse Repo Interest Receivable A/c
0.0543
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Appendix
List of Circulars consolidated by the Master Circular
No. Circular No. Date Subject
1. DBOD.No.FSC.BC.69/C.469- 90/91
Jan 18, 1991
Portfolio Management on behalf of clients
2. DO.DBOD.No.FSC.46/C.469- 91/92
July 26, 1991
Investment portfolio of banks-Transaction in securities
3. DBOD.No.FSC.BC.143A/24.48. 001/91-92
June 20, 1992
Investment portfolio of banks-Transaction in securities
4. DBOD.No.FSC.BC. 11/24.01.009/ 92-93
July 30, 1992
Portfolio Management on behalf of clients
5. DBOD.No.FMC/BC/17/24.48.001.92/93
Aug 19, 1992
Investment portfolio of banks-Transaction in securities
6. DBOD.FMC.BC.62/27.02.001/ 92-93
Dec 31, 1992
Investment portfolio of banks-Transaction in securities
7. DBOD.No.FMC.1095/27.01.002/93
April 15, 1993
Investment portfolio of banks-Reconciliation of holdings
8. DBOD.No.FMC.BC.141/27.02.006/93/94
July 19, 1993
Investmentportfolioofbanks-Transactioninsecurities-Aggregatecontractlimitforindividualbrokers-Clarifications
9. DBOD.No.FMC.BC.1/27.02.001/ 93-94
Jan 10, 1994
Investmentportfolioofbanks-Transactioninsecurities-BouncingofSGLtransferforms-Penaltiestobeimposed.
10. DBOD.No.FMC.73/27.07.001/ 94-95
June 7, 1994
AcceptanceofdepositsunderPortfolioManagementScheme
11. DBOD.No.FSC.BC.130/24.76.002/ 94-95
Nov 15, 1994
Investmentportfolioofbanks-Transactioninsecurities – BankReceipts (BRs)
12. DBOD.No.FSC.BC.129/24.76.002/ 94-95
Nov 16, 1994
Investmentportfolioofbanks-Transactioninsecurities – Roleofbrokers
13. DBOD.No.FSC.BC.142/24.76.002/ 94-95
Dec 9, 1994
Do
14. DBOD.No.BP.BC.37/21.04.048/95
April 3, 1995
Investment Portfolio of Banks - Transaction in Securities
15.
DBOD.No.FSC.BC.70/24.76.002/ 95-96
June 8, 1996
RetailingofGovernmentSecurities
16 DBOD.No.FSC.BC.71/24.76.001/ 96
June 11, 1996
Investmentportfolioofbanks-Transactioninsecurities
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83 Prudential Norms on Investments - 2014
17. 16.
DBOD.No.BC.153/24.76.002/96
Nov 29, 1996
-Do-
18. 17.
DBOD.BP.BC.9/21.04.048/98
Jan 29, 1997
Prudential norms-capital adequacy, income
recognition, asset classification and provisioning.
19. 18.
DBOD.BP.BC.32/21.04.048/97
April 12, 1997
-Do-
20. 19.
DBOD.FSC.BC.129/24.76.002-97
Oct 22, 1997
RetailingofGovernmentSecurities
21. 20.
DBOD.No.BC.112/24.76.002/1997
Oct 14, 1997
Investment portfolio of banks-Transaction in securities – Role of brokers
22. 21.
DBOD.BP.BC.75/21.04.048/98
Aug 4, 1998
Acquisition of Government and other approved securities- Broken Period Interest,- Accounting Procedure
23. 22.
DBS.CO.FMC.BC.1/22.53.014/98-99
July 7, 1999
Investment portfolio of banks–Transactions in securities
24. 23.
DBS.CO.FMC.BC.18/22.53.014/ 99-2000
Oct 28, 1999
-Do-
25. 24.
DBOD.No.FSC.BC.26/24.76.002/ 2000
Oct 6, 2000
Sale of Government securities allotted in the auctions for Primary issues
26. 25.
DBOD.BP.BC.32/21.04.048/2000-01
Oct 16, 2000
Guidelines on classification and valuation of investments.
27. 26.
DBOD.FSC.BC.No.39/24.76.002/ 2000
Oct 25, 2000
Investment portfolio of banks-Transaction in securities – Role of brokers
28. 27.
Dir.BC.107/13.03.00/2000-01
April 19, 2001
Monetary and Credit Policy for the year 2000- 2002 - Interest Rate Policy
29. DBOD.BP.BC.119/21.04.137/ 2000-2001
May 11, 2001
Bank financing of equities and investments in shares-Revised guidelines
30. DBOD.BP.BC.127/21.04.048/ 2000- 01
June 7, 2001
Non-SLRInvestmentsofBanks
31. 30.
DBOD.BP.BC.61/21 .04.048/ 2001-02
Jan 25, 2002
Guidelines for investments by banks/FIs and Guidelines for financing of restructured accounts by banks/FIs
32. 31.
DBOD.No.FSC.BC.113/24.76.002/2001-02
June 7 2002
On Investment Portfolio of BanksTransaction in Govt. Securities
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33. 32.
DBS.CO.FMC.BC.7/22.53.014/ 2002-03
Nov 7, 2002
Operation of investment portfolio by banks-submission of concurrent audit reports by banks
34. 33.
DBOD.No.FSC.BC.90/24.76.002/2002-03
March 31 2003
Ready Forward Contracts
35. 34.
IDMC.3810/1 1.08.10/2002-03
March 24 2003
Guidelines for uniform accounting f or Repo/ ReverseRepo transactions
36. 35.
DBOD.BP.BC.44/21.04.141/03-04
Nov 12, 2003
Prudential guidelines on banks' investment in non-SLRsecurities
37. 36.
DBOD.BP.BC.53/21.04.141/03-04
Dec 10, 2003
-do-
38. 37.
DBOD.FSC.BC.59/24.76.002 /03-04
Dec 26, 2003
Sale of Government securities allotted intheauctions for primary issues on the same day 39. 3
8.
IDMD.PDRS.05/10.02.01/ 2003-04
Mar 29, 2004
TransactionsinGovernmentSecurities
40. 39.
IDMD.PDRS/4777/10.02.01/ 2004-05
May 11, 2005
Saleofsecuritiesallottedinprimary issues
41. 40.
IDMD.PDRS/4779/10.02.01/ 2004-05
May 11, 2005
Readyforwardcontracts
42. 41.
IDMD.PDRS/4783/10.02.01/ 2004-05
May 11, 2005
Government securities transactions- T+1 settlement
43. 42.
DBOD.FSC.BC.28/24.76.002/ 2004-05
Aug 12, 2004
Transactions in Governmentsecurities
44. 43.
DBOD.BP.BC. 29/21.04.141/ 2004-05
Aug 13, 2004
Prudential norms-State Government guaranteed exposures
45. 44.
DBOD.Dir.BC.32/13.07.05/ 2004-05
Aug 17, 2004
Dematerialisationofbanks'investmentinequity
46. 45.
DBOD.BP.BC.37/21 .04.141/ 2004-05
Sep 2, 2004
Prudential norms on classification of investment portfolio of banks
47. 46.
DBOD.FSD.BC.No.31/24.76.002/2005-06
Sep 1, 2005
NDS-OM- CounterpartyConfirmation
48. 47.
DBOD.BP.BC.38/21.04.141/ 2005-06
Oct 10, 2005
Capital Adequacy –Investment Fluctuation Reserve
49. 48.
IDMD.No.03/11.01.01(B)/2005-06
Feb 28, 2006
Secondary Market transactions in Government Securities-Intraday short selling
50. 49.
IDMD.No.3426/11.01.01 (D)/ 2005-06
May 3, 2006
'When Issued' transactions in Central Government Securities'
51. 50.
DBOD.No.BP.BC.27/21.01.002/2006-07
Aug 23, 2006
Prudential guidelines–Bank’sInvestmentsinVCF
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52. 51.
IDMD.No.2130/11.01.01(D)/2006-07
Nov 16, 2006
WhenIssuedTransactionsinCentralGovernmentSecurities
53. 52.
DBOD.No.FSD.BC.46/24.01.028/2006-07
Dec 12, 2006
Financial Regulation ofSystemically Important NBFCsAndBank’sRelationship with them 54. 5
3.
IDMD.No./11.01.01(B)/2006-07
Jan 31, 2007
Secondary Market transactions in Government Securities- Short selling
55. 54.
Mailbox Clarification July 11, 2007
HTM Securities
56. 55.
DBOD.No.BP.BC.56/21.04.141/2007-08
December 6, 2007
Limits on Investment in Unrated Non-SLR securities-infrastructure bonds
57. 56.
DBOD.No.BP.BC.86/21.04.141/2007-08
May 22, 2008
Valuationofsecurities
58. DBOD.No.BP.BC.No.37/21.04.132/2008-09
August 27, 2008
Prudential Guidelines on Restructuring of Advances by Banks
59. 57.
Mailbox Clarification October 10, 2008
Transfer of Securities from One Category to Another
60. 58.
Mailbox Clarification March 16, 2009
Non-SLR Securities
61. 59.
Mailbox Clarification February 5,2009
Unlisted Non- SLR Securities
62. 60.
Mailbox Clarification September 19, 2008
Classification of Securities
63. 61.
Mailbox Clarification July 21, 2008
Investment Portfolio of Banks
64. 62.
IDMD.DOD.No. 334/11.08.36/2009-10
July 20, 2009
Ready Forward contracts in G-Sec
65. 63.
Mailbox Clarification September 3, 2009
Waiver of trade confirmation in Government Securities Transactions in OTC market
66. 64.
RBI/2009-10/184 IDMD No.1764/11.08.38/ 2009-10
October 16, 2009
OTC trades in Corporate debt securities
67. 6
5.
Mailbox Clarification November 6, 2009
Clarification on Capital Reserve
Account and Special Reserves Created under Income Tax Act, 1961
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68. 66.
Mailbox Clarification December 23, 2009
Treatment for Investment in Rural Housing Development Fund (RHDF) of National Housing Bank
69. 67.
RBI/2009-10/284 IDMD.DOD. 05 /11.08.38/ 2009-10
January 8, 2010
Repo in Corporate Debt Securities
70. 68.
IDMD/41 35/11.08.043/2009-10
March 23, 2010
Uniform accounting for repo-reverserepo transactions in G-Sec
71. 69.
RBI/2009-10/360 IDMD.DOD.07/11.01.09/ 2009-10
March 25, 2010
Guidelineson Stripping/ reconstitution of G-Sec
72. 70.
Mailbox Clarification March 30, 2010
Clarification on investment in debentures in the nature of advances
73. 71.
RBI/2009-10/403 IDMD.DOD.08 /11 .08.38/ 2009-10
April 16, 2010
Ready Forward Contract in Corporate Debt Securities
74. 72.
DBOD.No.BP.BC.98/21 .04.141/2009-10
April 23, 2010
Investment in Unlisted Non- SLR Securities
75. 73.
DBOD.No.BP.BC.97/21. 04. 141/2009-10
April 23, 2010
Classification of Investments by banks in Bonds issued by Companies engaged in Infrastructure activities
76. 74.
IDMD.DOD.11/11.08.36/2009-10
June 30, 2010
Reporting of OTC Transactions in Certificates of Deposit (CDs) and Commercial Papers (CPs)
77. 75.
RBI/2010-11/115 IDMD. DOD.17/11.01.01(B)/2010-11
July 14, 2010
Government Securities Act, 2006, Sections 27 & 30 - Imposition of penalty for bouncing of SGL forms
78. 76.
Mailbox Clarification July 20. 2010
Clarification on classification of investments by banks in bonds issued by companies engaged in infrastructure activities.
79. 77.
Mailbox Clarification August 3, 2010
Bank’s investments in Central Government guaranteed bonds – asset classification
80. 78
.
DBOD. No. BP.BC. 34/21. 04.141/2010-11 and DBOD. No.BP.BC.56/21. 04. 141/2010-11
August 6 and November 1, 2010
Sale of Investments held under Held to Maturity (HTM) category
81. 79
.
DBOD No. BP.BC. 44 / 21.04.141/ 2010-11
September 29, 2010
Prudential norms on Investment in Zero Coupon Bonds
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82. 80.
DBOD No. BP.BC. 58 / 21.04.141/ 2010-11
November 4, 2010
Accounting Procedure for Investments – Settlement Date Accounting
83. 81.
DBOD.BP.BC.No.72/21.04.141/2010-11
December 31, 2010
Investment in Non-SLR Securities-Non-Convertible Debentures (NCDs) of maturity up to one year
84. 82.
DBOD. No. BP.BC. 79 /21.04.141/2010-11
January 31, 2011
Recognition of permanent diminution in the value of investments in banks’ subsidiaries/joint ventures
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85. RBI/2010-11/551 IDMD No./29/11.08.043/2010-11
May 30, 2011
Guidelines for Accounting of Repo / Reverse Repo Transactions-Clarification
86. DBOD.No.BP.BC. 23 /21.04.141/2011-12
July 5, 2011
Investment by banks in liquid/shorttermdebt schemes of mutual funds
87. IDMD.PCD 14/14.03.07/2011-12
December 28, 2011
Secondarymarket transactions in Government securities – short selling
88. IDMD.PCD 19/14.03.07/2011-12
February 6, 2012
Transaction in Government securities
89. IDMD.PCD.20/14.01.02/2011-12
March 5, 2012
Settlement of OTC Transactions in Certificates of Deposit (CDs) and Commercial Papers (CPs)
90. IDMD.PCD.21/14.03.07/2011-12
June 21, 2012
Secondary market transactions in Government Securities - Short Selling
91. RBI/2012‐13/133 IDMD.PDRD.188/03.64.00/2012‐13
July 16, 2012
Sale of securities allotted in Primary issues on the same day
92. RBI/2012-13/270 IDMD.PCD.1423/14.03.02/2012-13
October 30, 2012
Ready Forward Contracts in Corporate Debt Securities- Permitting Scheduled Urban Cooperative Banks
93. RBI/2012-13/316 IDMD.DOD.No.06/10.25.66/2012-13
December 06, 2012
FIMMDA Code of Conduct for usage of Negotiated Dealing System-Order Matching (NDS-OM) and Over-The-Counter (OTC) Market
94. RBI/2012-13/365 IDMD.PCD.09/14.03.02/2012-13
January 7, 2013
Revised Guidelines on Ready Forward Contracts in Corporate Debt Securities
95. Mail Box Clarification January 30, 2013
Prudential Norms on Investment in Low Coupon Bonds
96. DBOD.No.BP.BC.92/21.04.141/2012-13
May 15, 2013
Monetary Policy Statement 2013-14 SLR Holdings under Held toMaturity Category
97. RBI/2012-13/550 IDMD.PCD.11/14.03.06/2012-13
June 26, 2013
Settlement of OTC transactions in Corporate Bonds on DvP-I basis
98. IDMD.PCD.12/14.03.02/2012-13
June 26, 2013
Settlement of OTC Transactions in Certificates of Deposit (CDs) and Commercial Papers (CPs)
99. IDMD.PCD.13/14.03.07/2012-13
June 26, 2013
Guidelines on Securities Transactions to be followed by Primary Dealers
100. DBOD.BP.BC.No.105/21.04.132/2012-13
June 27, 2013
Bonds issued by State Distribution Companies (Discoms) – Guidelines on Valuation
101. DBOD.BP.BC.No.41/21.04.141/2013-14
August 23, 2013
Investment portfolio of banks – Classification, Valuation and Provisioning
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102. IDMD.PCD. 06 /14.03.06/ 2013-14
August 26, 2013
Reporting of OTC transactions in Securitized Debt Instruments
103. Mailbox clarification March 21, 2014
Sale of Investments held under Held to Maturity (HTM) Category
104. IDMD.PCD. 10 /14.03.06/ 2013-14
February 24, 2014
FIMMDA’s Trade Reporting and Confirmation platform for OTC transactions in Corporate Bonds and Securitized Debt Instruments
105. IDMD.PCD. 13 /14.01.02/2013-14
June 25, 2014
Reporting of OTC transactions on F-TRAC-Hiving off to CDSIL
106. Mailbox clarification June 27, 2014
Disclosure requirements for non-SLR investments
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